governance in global production networks: managing...
TRANSCRIPT
Governance in Global Production Networks: Managing environmental health risks in
the personal computer production chain
A thesis submitted to The University of Manchester
for the degree of Doctor of Philosophy in the Faculty of Humanities
2012
Gale Raj-Reichert
School of Environment and Development
Institute for Development Policy and Management
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Table of contents
Tables and figures 8
List of acronyms 9
Abstract 12
Declaration and Copyright statement 13
Acknowledgements 14
Chapter 1: Introduction 16
1. Private governance in the personal computer global production network 16
2. Key governance features in the electronics industry 20
A. Private standards and codes of conduct 20
B. Government regulation 24
3. Case study: The Hewlett Packard led GPN and the governance of its
printed circuit board suppliers in Penang, Malaysia 26
4. Building an analytical framework 27
5. Thesis structure 28
Chapter 2: Understanding the organisation and health and safety governance of global
production: the analytical framework 31
1. Introduction 31
2. The global value chain framework 33
A. Modular value chains and the electronics industry: contract
manufacturers and lead firms 37
B. Limits to the modular value chain concept 38
3. The global production network framework 39
A. The role of non-firm actors in GPNs 42 i. Civil society organisations and labour unions 42
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ii. The state and GPN governance 44
iii. The postdevelopmental state 47
B. Multiple and complex power relationships in a GPN 49
C. Standards and codes of conduct in the governance of GPNs 51
4. Three key concepts of power 52
A. “Power over”/Inter-firm 53
B. “Power to”/Networked-relational 55
C. Power as ‘technology’/Governmentality 57
5. Conclusion 60
Chapter 3: The global electronics (personal computer) industry and its impact on the
Malaysian economy 63
1. Introduction 63
2. The global electronics industry 64
3. The printed circuit board industry 70
4. The electronics industry in Malaysia 71
A. Historical development: 1970s to 2000s 71
B. The state of the Malaysian electronics industry in recent years 75
5. The electronics industry in Penang 76
6. Conclusion 82
Chapter 4: Research methodology 84
1. Introduction 84
2. Research phases 85
A. First phase: selecting the case study 85
B. Second phase: fieldwork 86
i. Firms interviewed 87
ii. Civil society organisations, trade unions and other
non-firm actors interviewed 90
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iii. Malaysian government agencies interviewed 92
C. Third phase: gathering secondary data 95
3. Methods of analysis and triangulation 96
4. Reflections on the limitations and challenges with my research 100
A. Limitations 100 B. Ethical issues 104
4. Conclusion 105
Chapter 5: How Hewlett Packard governs its suppliers 107
1. Introduction 107
2. Drivers for environmental and labour governance of the supply chain 109
3. How HP governs the environmental health and safety conditions of its
suppliers 111
4. How HP assesses compliance of its SER programme 115
5. Two key implementation tools: audit and scorecards 118
A. The audit 119
B. Scorecards 120
6. Successes and challenges in governing health and safety conditions
amongst suppliers 121
A. Outcomes in Malaysia 124
B. Wider challenges to supplier governance 126
7. Key issues in supplier governance over the environment, health and
safety 128
8. Conclusion 132
Chapter 6: First tier suppliers to Hewlett Packard: Health and safety governance
in Penang 136
1. Introduction 136
2. Headquarter perspective of a first tier supplier 138
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A. Internal environmental, health and safety governance programme 140
B. Challenges with implementing the Electronic Industry Code of
Conduct internally and with suppliers 144
3. Five first tier suppliers and their manufacturing sites in Penang 148
A. Profile of the first tier supplier firms 148
B. Governing health and safety by CM 151
C. Governing health and safety by CS1 155
D. Governing health and safety by CS2 160
E. Governing health and safety by CS3 163
F. Governing health and safety by CS4 165
4. Summary discussion of governance activities 168
A. Governing EHS at a distance 169
B. The implication of worker ‘behaviour’ 171
C. Long term worker health conditions kept invisible 173
D. Lack of EICC implementation 175
5. Conclusion 181
Chapter 7: Second tier suppliers 186
1. Introduction 186
2. Supplier descriptions 187
A. Supplier 1 187
B. Supplier 2 189
C. Supplier 3 191
D. Supplier 4 192
E. Supplier 5 195
F. Supplier 6 and 7 195
3. Emerging trends and key factors 196
4. Conclusion 205
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Chapter 8: Regulating health and safety in Malaysia: the state perspective 209
1. Introduction 209
2. History of occupational health and safety legislation in Malaysia 210
3. DOSH, NIOSH and the enforcement of OSHA 215
A. Department of Occupational Safety and Health 215
B. National Institute of Occupational Safety and Health 217
C. Factors contributing to weak regulatory performance over health
and safety 218
i. Weak compliance 218
ii. Weak enforcement and competence 219
iii. Weak knowledge on health and safety 222
4. Conclusion 225
Chapter 9: The role of civil society organisations and trade unions in the global and local
Context 229
1. Introduction 229
2. Contestation at the global level: the GoodElectronics Network and the
Electronics Industry Code of Conduct 231
3. Contestation in the local context: Malaysian civil society organisations
and trade unions 236
A. Government-civil society relations 236
B. Weak Malaysian civil society campaigns on the electronics
Industry 238
C. Trade unions and the electronics industry in Malaysia 240
D. Keeping the trade union movement futile in the electronics industry 243
4. Conclusion 245
Chapter 10: The story of health and safety governance of the personal computer global
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production network 249
1. Introduction 249
2. Key research findings 251
3. Revisiting concepts of power 258
A. ‘Power over’: inter-firm relationships 259
B. ‘Power to’ 261
C. Governmentality/power as ‘technology’ 263
4. Putting it all together: the big picture of governance in the personal
computer industry 264
5. Conclusion 268
Appendix 1 273
Appendix 2 278
Appendix 3 279
References 283
WORD COUNT: 78,380
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Tables and Figures
Table 3.1 Top ten exporters of integrated circuits and electronic components by share in
economy’s total merchandise exports (Million dollars and percentage) 75
Figure 3.1 Key phases of the electronics industry in Malaysia 77
Table 3.2 Number of electronic firms in FTZs in Penang 79
Table 3.3 Average job creation from investment projects in Penang in 2009 82
Table 4.1 Group of actors interviewed. Cross analysis of primary data (indicated by arrows) was
conducted horizontally between groups of actors within each scale, and vertically and
diagonally across scales in the GPN 99
Table 5.1 Major locations of HP product materials, components and services suppliers 111
Table 5.2 Total major non-conformances of the EICC by audited high risk suppliers
for 2005-2006 122
Table 6.1 First tier supplier profiles 150
Table 6.2 EHS Governance profiles of first tier firms 167
Table 6.3 EICC implementation internally and with second-tier suppliers 180
Table 7.1 Malaysian PCBM and PCBA tier two supplier governance profiles for 2008
C denotes customer requirement and V denotes voluntary compliance 197
Table 8.1 List of regulations and guidelines that accompany the OSHA 1994
(non exhaustive list) 214
Table 10.1 Changes in the governance needs, performances and outcomes of the
different tiers of the GPN 268
Figure 10.1 Different levels of governance in the personal computer GPN 272
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LIST OF ACRONYMS
AMD Advanced Micro Devices
BRI Behavioural Risk Improvement
BS British Standard
BSR Business for Social Responsibility
CAFOD Catholic Agency for Overseas Development
CEO Chief Executive Officer
CM Contract manufacturer
CR Corporate responsibility
CSO Civil society organisation
CSR Corporate social responsibility
DOSH Department of Occupational Safety and Health
DRAM Dynamic random-access memory
EHS Environmental, health, and safety
EICC Electronic Industry Code of Conduct
EMAS European Union Eco Management and Audit System
EMS Electronic Manufacturing Service
ERM Environmental Resources Management
E-TASC Electronic Tools for Accountable Supply Chains
EIWU Electrical Industry Workers Union
EPZ Export Processing Zone
EU European Union
EUP Energy-using product
FMA Factories and Machinery Act
FTSE Financial Times and the London Stock Exchange
FTZ Free Trade Zone
GCR Global Citizenship Report
GEN GoodElectronics Network
GPN Global production network
GVC Global value chain
HASAWA Health and Safety at Work Act of 1974
HP Hewlett Packard
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ICRT International Campaign for Responsible Technology
ILO International Labour Organisation
IMF International Metalworker’s Federation
IMP Industrial Master Plan
ISA Internal Security Act
ISI International strategy and management
ISM Institute for Supply Management
ISO International Standards Organisation
MBA Master in Business Administration
MNC Multinational corporation
MTUC Malaysian Trades Union Congress
NGO Non-governmental organisation
NIOSH National Institute of Occupational Safety and Health
OECD Organisation for Economic Co-operation and Development
OHS Occupational health and safety
OHSAS Occupational Health and Safety Assessment Series
OSHA Occupational Safety and Health Act of 1994
OSH Occupational, safety, and health
PC Personal computer
PCB Printed circuit board
PCBA Printed circuit board assembly
PCBM Printed circuit board manufacturing
PDC Penang Development Corporation
PPE Personal protective equipment
REACH Registration, Evaluation, Authorisation, and Restriction of
Chemicals
RoHS Restriction of Hazardous Substance
RTU Registrar of Trade Unions
SAQ Self Assessment Questionnaire
SCSER Supply Chain Social and Environmental Responsibility
SD Strategic Development
SER Social and Environmental Responsibility
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SHO Safety and health officer
SIRIM Standards and Industrial Research Institute of Malaysia
SME Small and medium sized enterprise
SMI Small and medium institute
SOP Standard operation procedures
SRM Supplier Relationship Manager
UK United Kingdom
UNEP United Nations Environment Programme
USD United states dollar
USECHH Use and Standards of Exposure of Chemicals Hazardous to
Health Regulations
US United States
WEEE Waste Electrical and Electronic Equipment
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Abstract The University of Manchester Gale Raj-Reichert Doctor of Philosophy Governance in Global Production Networks: Managing environmental health risks in the personal computer production chain 31 January 2012
Manufacturing activities in the personal computer industry are organised in a
complex global production network (GPN) led by a variety of branded global lead firms. Increasingly, considerations on environmental, health and safety governance have emerged as an important element to the management and co-ordination of these production networks by lead firms. Within the personal computer GPN, the printed circuit board (PCB) industry is commonly subcontracted by branded firms to suppliers located in developing countries such as Penang, Malaysia. The activities of PCB manufacturing and assembly involve the use of various hazardous chemicals that pose environmental health risks to workers.
This research aims to understand how governance over environmental health is implemented in the GPN led by Hewlett Packard (HP) and in particular with lower tier suppliers in the printed circuit board industry in Penang, Malaysia. The main research question is: how are environmental health concerns managed by governance mechanisms in GPNs that involve the relocation of harmful manufacturing activities to developing countries? Governance mechanisms within the GPN include private standards and codes of conduct, which are supplemented by government regulation in the host country. Governance outcomes are shaped by relations between firms and non-firm actors such as government agencies, civil society organisations and trade unions. Therefore, a GPN analytical framework is utilised to understand more specifically how a variety of firm and non-firm actors and their relationships and power dynamics influence governance practices in the industry.
Fieldwork for the research was conducted in 2008 and 2010 and consisted of semi-structured in-person and telephone interviews with thirty seven key actors in Malaysia, Western Europe, and the United States. Key informants included HP; first tier suppliers to HP and second tier suppliers located in Penang, Malaysia; global and Malaysian civil society organisations; an international federation of trade unions and Malaysian trade unions; Malaysian government agencies; and a politician, occupational health doctor and journalist in Penang.
The findings from this research show that a combination of factors results in a weak scenario for governing environmental health risks of suppliers in Penang. These factors are resource constraints among suppliers; weak host country capacity and willingness to regulate; weak knowledge of environmental health risks by firms and regulatory agencies; and weak contestation by external stakeholders. Findings from the analysis also show the need to have differentiated views of power amongst different actor relationships in order to understand the complexity of GPN governance.
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Declaration
No portion of the work referred to in the thesis has been submitted in support of an
application for another degree or qualification of this or any other university or other
institute of learning.
Copyright Statement
i. The author of this thesis (including any appendices and/or schedules to this thesis) owns
certain copyright or related rights in it (the “Copyright”) and she has given The University
of Manchester certain rights to use such Copyright, including for administrative purposes.
ii. Copies of this thesis, either in full or in extracts and whether in hard or electronic copy,
may be made only in accordance with the Copyright, Designs and Patents Act 1988 (as
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iii. The ownership of certain Copyright, patents, designs, trade marks and other intellectual
property (the “Intellectual Property”) and any reproductions of copyright works in the
thesis, for example graphs and tables (“Reproductions”), which may be described in this
thesis, may not be owned by the author and may be owned by third parties. Such Intellectual
Property and Reproductions cannot and must not be made available for use without the prior
written permission of the owner(s) of the relevant Intellectual Property and/or
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relevant Thesis restriction declarations deposited in the University Library, The University
Library’s regulations (see http://www.manchester.ac.uk/library/aboutus/regulations) and in
The University’s policy on presentation of Theses.
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Acknowledgements
My PhD journey has been a long and eventful one. It began with a move from Geneva, Switzerland to Berlin, Germany a month before my enrolment at the University of Manchester. In its midst, it resulted in my bringing a beautiful and most delightful daughter, Olivia, into this world with my husband Tobias. It has ended a couple of months away from the exciting anticipation for the arrival of our son. There is indeed a life and world outside of the PhD and it goes on despite of it. And so throughout these past five and a half years of life, I must thank foremost my husband Tobias Reichert for the tremendous amount of support, help, care and love he has provided throughout this journey. Olivia has brightened the second half of the journey in ways unimaginable. Her love, smiles, laughter, and play were the very kinds of distractions that ensured the writing up of chapters and finalisation of the thesis was kept in perspective. Hence, this PhD is dedicated to my family – Tobias, Olivia and our soon to arrive little boy. My supervisor Khalid Nadvi will be remembered in several ways. First for introducing me to the global value chains and global productions networks concepts, taking me on as a PhD student, and allowing me to explore relatively freely my research interests albeit pulling the reins at times with reminders to ‘stop reading and start writing’ and to ‘not get influenced by every new thing you read’. Towards the end of the process, during the more difficult, hurried, and stressful part of ‘writing up’ the final thesis, I am most grateful for his willingness to read and comment on several drafts of my chapters. I will always remember his finding the bigger (and interesting) story from my research which my focus on the trees instead of the forest could not. Perhaps more importantly, I must thank Khalid Nadvi for his incredible sense of understanding and support in my needing to take breaks during my two pregnancies. Hence, the deepest appreciation and gratitude are afforded to him. I must also thank my parents, George Raj and Martha Raj, and my brother Glen Raj for always believing in whatever I’ve set out to do. While I may not have received the more exciting and challenging Lego toys and model airplanes as a child the way my brother did, there has never been a time in my life where I was discouraged or questioned in taking on a new challenge in life and being successful in it. For this, I must thank my family for cultivating a sense of self-confidence and personal belief in achievement which I came to find was of utmost importance in undertaking and completing a PhD. My dedicated group of friends at the University of Manchester will always be remembered and cherished for being tremendously supportive and caring in so many ways. During our first year, the agreement to meet for a ‘curry’ at least once a month was a tremendous help in staying sane in what did turn out to be a lonely process of ‘doing a PhD’. I look forward to these long lasting friendships and the exciting things they will continue to do. Finally, I must thank and remember all of the different persons that were my research (interview) respondents in Malaysia, throughout Europe and in the US as well as many others that I have spoken to about my research casually, in passing, and for advice.
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They include good friends and people I have met in near and distant places. Each one has in their own way contributed to my final product – a PhD thesis.
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CHAPTER 1
INTRODUCTION
1. Private governance in the personal computer global production network
The organisation of manufacturing in the personal computer industry is fragmented
and globally dispersed. Production activities are commonly subcontracted or outsourced by
lead firms, such as Hewlett Packard, often involving several tiers of suppliers. Suppliers
either produce specific components or parts for the computer, assemble components and
parts into the final product, or themselves subcontract out production to another set of lower
tiered firms. These globally organised production activities result in a complex global
production network (GPN).
Certain manufacturing processes of parts and components for a computer can be
environmentally harmful and pose health risks to workers. This is the case, for example,
with the manufacturing and assembly of printed circuit boards (PCBs). The manufacturing
and assembly of PCBs is considered by some to be the most chemical intensive process in
manufacturing a computer (LaDou 2006; Lam et al. 2011). Workers in the PCB industry are
exposed to toxic metals, solvents, acids and other hazardous chemicals. Some of these
include glycol ether solvents, formaldehyde, dimethylformamide, brominated flame
retardants and lead. These chemicals are reproductive toxins, toxic to many organ systems
and human carcinogens (LaDou 2006). More sophisticated PCB manufacturing factories
utilise cleanrooms similar to the semiconductor industry that re-circulates contaminated air,
exposing workers to chemical fumes and vapours over a long period of time. Solvents used
in PCB assembly to clean boards include trichloroethylene, which have been linked to
Hodgkin’s disease, leukaemia, and kidney and liver cancers (IMF 2007b). For example,
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overexposure to dimethylformamide, which is easily absorbed through the skin, can cause
alcohol intolerance, male reproductive cancers, and possible embryotoxicity (Chang et al.
2005).
LaDou (2006) finds a lack of official records on worker exposure to hazardous
substances and there has been no study conducted to determine whether workers in the PCB
industry have developed reproductive problems or cancer. Where studies have been
conducted findings have shown the occurrence of hand dermatitis and a higher rate of
anemia in Taiwanese workers exposed to glycol ethers, which is a neurologic, reproductive
and blood system toxin (LaDou 2006). How these health and safety risks are governed is
crucial for keeping workers safe in PCB factories.
Much of the PCB manufacturing and assembly activities have been relocated to
developing countries, like Malaysia, within the personal computer GPN. The relocation of
production activities that carry health risks raise questions of the externalisation of
environmentally harmful production to developing countries and over the safeguarding of
workers through proper and effective governance measures in various locations of the global
industry. The risks becomes greater the further down the supply chain to lower tier suppliers
who are more vulnerable to governance challenges which this thesis explores.
A key governance feature in many global industries, including electronics, is the use
of private codes of conduct and standards to address risks such as health and safety, labour,
environmental and ethical concerns (see Nadvi and Wältring 2004). Much of these
governance measures have been responses to external pressures from civil society
organisations that find regulatory regimes in developing countries lax or ineffective. Lead
firms are often targeted to be responsible for ensuring their suppliers (and suppliers of
suppliers) implement environmental, health and safety codes and standards.
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Coordinating governance measures throughout a GPN however presents several
challenges. First, lead firms must reach a large number of suppliers in their GPNs. Second,
suppliers do not always have enough resources allocated to implement a host of private
codes and standards internally and with their own (second tier) suppliers. Third, it is not
always easy to ensure and verify full and proper compliance of standards and codes by
suppliers, particularly of suppliers further down the GPN. Finally, there are questions on
whether private governance measures result in properly safeguarding workers or the
environment.
In light of these issues, this thesis’s core research question is as follows: how do
Hewlett Packard and its suppliers ensure governance over health and safety of PCB
manufacturing and assembly suppliers within the personal computer GPN? This question is
examined through the relationships within the production chain between Hewlett Packard
and its first tier suppliers and second tier suppliers and the wider context of external
pressures and host government regulatory activities that affect governance practices. To
address this core question, the thesis sets out the following sub research questions:
i. What private governance mechanisms are used for safeguarding environmental
health and safety in the personal computer global production network?
ii. How are these health and safety governance measures implemented through
inter-firm relations amongst the various tiers of suppliers in Penang, Malaysia?
iii. How do firm and non-firm actors affect the health and safety governance
practices at the supplier sites in Penang, Malaysia?
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This research aims to contribute to the literature on governance of GPNs in many
ways. Indeed, the GPN framework has been used to examine the dynamics of global
industries and their impacts at the local scale (see Bridge 2008; Lane 2008; Nadvi 2008;
Smith and Pickles 2011). Similarly, the GPN literature has begun to explore the role of
workers more closely (see Carswell and De Neve forthcoming; Coe and Jordhus-Lier 2011;
de Neve 2009; Nadvi et al. 2011; Posthuma and Nathan 2010). However, with rare
exceptions (see Ruwanpura forthcoming) there has been little attention paid to occupational
health and safety governance within global production networks.
This thesis aims to show how private standards as well as public regulation are able
to drive governance over health and safety within the electronics industry GPN. This study
advances the literature in four distinct ways. First, while there have been studies on GPN
governance with a focus on firms, non-firm actors, or the state, including all three actors has
been less frequent. This thesis sets out to integrate these various actors, their practices and
power dynamics to present a comprehensive analysis of GPN governance. In other words, it
aims to analyse how inter-firm and non-firm actor relationships affect practices of GPN
governance. Second, it also examines how these various actors can and are able to influence
GPN governance practices with help from a variety of power concepts. They include the
concepts of ‘power over’ at the inter-firm level, ‘power to’ between firms and civil society
organisations and trade unions, and power as governmentality at the intra-firm level. Third,
this research has traced the governance practices from a lead firm down to first tier firms
and second tier firms in the electronics industry thereby contributing to investigations of
governance down to the bottom tiers of a GPN. Fourth, it provides detailed empirical
analysis of the interaction of chain and non-chain actors in governance over health and
safety issues through a study of the GPN arrangements of a leading global brand (Hewlett
Packard). It does this by weaving research undertaken at both the global level (global
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brands, global civil society organisations) and at the local levels (locally based first and
second tier suppliers, local civil society organisations and trade unions and the local state)
within the PCB electronics industry in Penang, Malaysia.
This chapter continues with section two which provides a background of the key
governance features that pertain to the case study. This includes the rise of private standards
and codes in the governance of global industries generally and the electronics industry more
specifically and the use of government regulation in Malaysia and the EU that affect
governance practices amongst the firms interviewed in the case study. Section three
provides a discussion that justifies the choice of the difference actors and processes chosen
for the case study. Section four briefly describes the analytical framework used in this
research which is expounded on in more detail in the following chapter. Section five
outlines the thesis structure.
2. Key governance features in the electronics industry GPN
A. Private standards and codes of conduct
Because there is no global government to regulate firms and the impacts on labour
conditions or health and safety of their outsourced production, private governance measures
have been taken up as an alternative or the second best form of governance over global
industries. These include product standards such as quality and consumer safety.
Increasingly process standards are used by firms to measure the “how” of production
processes such as social, ethical, and environmental conditions (Nadvi and Wältring 2004).
Indeed, a key feature of many global industries since the 1990s is the use of private codes
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and standards to address environmental, labour, health and safety, and ethical concerns
(Nadvi and Wältring 2004). Much of this is due to a rise in global CSO campaigns that have
exposed poor labour and environmental conditions in developing country factories that
supply to branded firms in the global North. The 1990s saw the height of these activities
with anti-sweatshop campaigns against the apparel and footwear industries. Civil society
organisations campaigns pressured firms to improve conditions not only of their factories
but also their suppliers (Jenkins et al. 2002; Sum and Ngai 2005; Utting 2005). In response
private standards and codes of conduct were designed and implemented by individual and
groups of firms, civil society organisations, international organisations, and as part of multi-
stakeholder initiatives with civil society organisations, firms, international organisations and
(sometimes) governments.
The increased use of private self regulatory mechanisms coincides with the reduction
in government regulation of the private sector and the market. This change has been coined
as a shift from government to governance where responsibility traditionally held by
government is shifted to the private and not for profit sectors (Perry and Singh 2001;
Heynen and Robbins 2005; Stoker 1998). This increased use of private self-regulation is
also encouraged by the growing acceptance of the idea within the business community,
media, governments and even actors critical of MNCs like civil society organisations
(Collins 2003; Haufler 2003; Kolk et al. 1999).
Several reasons are given for the increased use of standards and codes by MNCs.
Firms are said to engage in “global self regulation” as a defensive strategy to reduce the
negative impacts of activist and consumer campaigns and stave off potentially harmful
national and international regulation (Zadek 2004; Haufler 2003). Firms also favour
voluntary mechanisms because they provide the flexibility needed to operate in a just in
time industry characterised by fast changing technological, competitive and consumer
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demands (Hayter 2009; O’Laughlin 2008; Raworth and Kidder 2009). Further, because
many brand firms maximise economic rents from final product sales to consumers,
environmental and social standards and codes have been targeted to appeal to high paying
consumers (Barrientos 2008). MNCs are also said to implement private initiatives to
influence and control the agenda of civil society organisations on ways to improve social
and environmental conditions (Utting 2005).
Increasingly the trend among firms has been to develop sector or industry wide
codes of conduct (Haufler 2003; Lipschutz and Rowe, 2005; Ruggie 2003; Seidman 2008).
This is the case, for example, in the coffee, timber, apparel, chemical, mining and
electronics industries (Blowfield 1999; Gereffi et al. 2001; Raj-Reichert 2011). Jenkins
(2001) describes the motivations to use industry wide codes of conduct as either a way for
an industry to level the playing field on social and environmental issues or give firms
already leading on corporate social responsibility in their industry a competitive edge by
way of a race to the top. Brand firms can benefit most in the image game with their greater
capacity to implement such codes and monitor their suppliers in comparison to smaller firms
(Sethi and Emelianova 2006).
The impacts of standards however vary and are not without their challenges in the
governance outcomes they aim to achieve. Take labour standards as an example. First,
labour standards and codes differ or are selective in their inclusion of the International
Labour Organisation Core Labour Standards or reference to national laws. Second, they
often do not reach lower tier firms in the GPN. Third, standards whose effectiveness is
measured by audits rarely capture the situation and viewpoint of workers. Fourth, “first
generation” private codes and standards create a system of governance that parallel efforts
by government agencies and trade unions or is conducted without their consultation. Cross-
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learning and sharing of information amongst these different actors for more effective
governance outcomes rarely takes place (Posthuma 2010).
In the electronics industry, firms – brand firms in particular - implement and require
their suppliers to comply with firm specific, industry wide, and international standards and
codes of conduct. The international standard for managing environmental risks is the ISO
14001 and for occupational health and safety conditions is OHSAS 18001. ISO standards
provide guidelines for management systems that require firms to self-regulate by identifying
and controlling their own environmental and health impacts of their products and activities
by setting objectives and targets for continual performance improvements. Their compliance
is determined by documentation of management procedures, internal monitoring and third
party audits. The efficacy of these standards is limited given they do not provide qualitative
values for the products or processes of the firms that implement them (Nadvi and Wältring
2004).
For example, OHSAS 18001 specifies how a firm implements a health and safety
management system. According to OHSAS specialists, firms are to use performance
indicators for the categories of conditions, management, and operational. Indicators for
conditions include “occupational accidents statistics”, “employee health and safety
consciousness”, “frequency of unsafe employee conducts” and “zero accident working
hours”. Indicators for management performance include “top management promises”,
“completion rate of corrective and preventive measures”, “completion rate of policy
objectives” and “internal auditing frequency”. Finally, indicators for operational
performance include “self-check frequency”, “top management inspection tour”, “frequency
of subcontractor rule violation” and “education and training implementation frequency”
(Chen et al. 2009). These calculative indicators assess mainly the frequency and completion
of activities or conduct and not necessarily the quality of worker health.
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The electronics industry has an industry wide code of conduct - the Electronic
Industry Code of Conduct (EICC). The EICC was established on 21 October 2004 by a
group of brand name firms and contract manufacturers. The EICC specifies guidelines on
firm conduct and policies on labour, health and safety, the environment, ethics, and
management systems. It borrows heavily from the HP Supplier Code of Conduct of 2002
and is also based on different international standards such as the OECD Guidelines for
Multinational Enterprises, the Universal Declaration of Human Rights, ISO 14001, OHSAS
18001, and the European Union Eco Management and Audit System. Extensive
benchmarking of the apparel and footwear industry governance approaches was also done
during the development of the code (firm interview 2008; Casey 2006; Electronic Industry
Code of Conduct v. 3.0).
The main goal of the EICC was to replace the different requirements for standards
and codes suppliers received from customers with one common code. Its objective was to
reduce the burden and costs suppliers faced from complying with frequent paperwork,
reporting obligations and numerous annual audits. The code also aimed to be a governance
mechanism that reaches lower tier suppliers in the electronics industry GPN. The EICC
Group is currently the largest business corporate social responsibility (CSR) group in the
electronics industry. Membership grew rapidly after the code of conduct was created in
2004. At the end of 2009, the EICC had 42 members.1 The majority of members are
component manufacturers followed by contract manufacturers (CMs) and finally brand
name firms (EICC Annual Report 2008; 2009).
B. Government regulation
1 Seven firms did not renew their membership in 2009 due to the global economic downturn.
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In addition to private governance mechanisms, government regulations also play an
important role in protecting the health and safety of workers. In Malaysia, the regulation on
health and safety is the relatively new Occupational Safety and Health Act of 1994 (OSHA),
which is enforced by the Department of Occupational Safety and Health (DOSH). The
OSHA, which is based on the United Kingdom’s Health and Safety at Work Act of 1974, is
a flexible legislation premised on the concept of self-regulation. It places the responsibility
of identifying and controlling risks on employers. The Malaysian OSHA also incorporates
different national occupational, safety and health laws and international standards that apply
to the prohibition of human carcinogens, requirement of medical surveillances, risk
assessments for chemicals, monitoring of airborne contaminants, and others (Soehod and
Laxman 2007; Rampal and Nizam 2006). Despite these specifications, OSHA obligations
are differentiated by firm size and industry, which results in small and medium sized
enterprises in the electronics industry being exempt from significant portions of the
regulation. Chapter eight will discuss in more detail the outcomes of OSHA on the
performance of suppliers in Penang, Malaysia.
It must also be noted that European Union (EU) legislations that are a mix of both
product and process standards also play an important role in governing parts of the
electronics industry GPN. Final products, which include their parts and components, sold in
the EU must comply with the EU Directive on Restriction of Hazardous Substance (RoHS),
Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH), and Waste
Electrical and Electronic Equipment (WEEE). RoHS prohibits the use of heavy metals and
harmful chemicals such as lead. REACH requires firms to assess and manage chemical risks
and provide safety information to its users. WEEE restricts the use of hazardous substances
in electrical and electronic equipment and promotes the collection and recycling of such
equipment (Center for Research on Multinational Corporations 2005; European
26
Commission n.d.a). Given the size of the EU market, these regulations function as de facto
standards of operation for many firms throughout the industry.
Appendix 1 provides a typology of the different standards, codes, and regulations
that are complied with or referred to by firms and non-firm actors in this case study. The
typology distinguishes the various standards based on their coverage of occupational health
and safety, whether they are voluntary standards or regulations, how they came about, how
far down the supply chain they are implemented, how they are monitored and compliance
determined, and how different actors in the GPN are involved in these processes. It can be
noted that CSOs had very little engagement in the making and compliance monitoring of the
different occupational health and safety standards and codes referred to in this case study.
There is a clear absence of “fourth generation” standards, which according to Nadvi and
Wältring (2004) are multi-actor initiatives with CSOs as drivers. This is in contrast to the
observed trend that social standards are increasingly being forged jointly by business and
CSO networks (Nadvi and Wältring 2004). The different standards, codes, and regulations
in Appendix 1 will be referred to throughout the thesis.
3. Case study: The Hewlett Packard led GPN and the governance of its
printed circuit board suppliers in Penang, Malaysia
Hewlett Packard (HP) is one of the top computer brands on the market today. The
brand was chosen as the lead firm to focus on in this research because it commands a large
GPN and boasts an active corporate social responsibility profile in the industry. It was also a
key player in the development of the Electronics Industry Code of Conduct, which is a key
governance tool over the environment, health and safety, labour and ethics for the
electronics industry. HP is also engaged with civil society organisations and portrayed an
27
openness to discussing governance issues in the media. For these different reasons, HP was
a good lead firm candidate for research and data collection on its governance experiences.
Penang, Malaysia was chosen as the case study location for examining a group of
HP’s first tier suppliers and second tier suppliers in the PCB industry. Penang was one of
the first offshore locations for electronic firms from developed countries. Thus, the
electronics industry has a long and important history in Penang as a key sector of economic
activity for the state and the country. Many of the key suppliers to major lead firms such as
HP have manufacturing sites in Penang. Some of these suppliers are either engaged in
manufacturing PCBs or using them in their production activities. There is also a host of
second tier suppliers, both foreign and domestic, that are engaged in the assembly of PCBs.
The governance experiences of HP and its suppliers however did not occur in a
vacuum. Pressures from external groups such as civil society organisations and trade unions
have had an impact (or lack of) on the governance practices of firms, particularly brands
such as HP. The types of activities civil society organisations and trade unions are engaged
in with the electronics industry are examined from a global and local/national (Penang,
Malaysia) context. The differences in these experiences present differentiated governance
relationships between firms and non-firm actors in the GPN.
The national context and situations of host governments are also important in
affecting the governance practices of those segments of the GPN located within its borders.
Government regulation and regulatory authorities over health and safety can play an
important role in complementing private governance measures. Moreover, the state policies
on civil society actors can determine the extent to which non-firm actors are able to
influence governance practices at the local scale in GPNs.
4. Building an analytical framework
28
To consider the various actors (firms, civil society organisations and trade unions,
and the state) and their actions requires a robust and comprehensive analytical framework. I
use the global production network (GPN) framework as the main conceptual lens for the
analysis of this research. The framework is used selectively and functionally to examine the
various actors and processes involved in the governance over health and safety in the
personal computer GPN. Complementing the GPN lens is the global value chain (GVC)
framework on governance relationships - in particular its literature on the inter-firm
relationships of the electronics industry. My analysis focuses on the role of firm and non-
firm actors, such as civil society organisations, trade unions and the state, in influencing and
impacting the governance practices of the HP led GPN down to second tier suppliers located
in Penang. More specifically, the thesis examines the inter-firm relationships, the interaction
between civil society organisations and trade unions with firms, the intra-firm perspective of
governance activities undertaken at the supplier sites in Penang, and the different ways in
which the Malaysian state affects governance practices and different relational processes.
Also, because the exercise and outcomes of governance activities reflects unequal power
relationships between different actors at different nodes, scales and processes in the GPN, I
also complement the GPN and GVC inspired analysis with different conceptions of powers.
This broad analytical framework is used to gain a comprehensive understanding of the
various types of actor relations and power dynamics that are present in the governance of
health and safety in the GPN.
5. Thesis structure
29
Following this introduction, Chapter 2 sets out the conceptual and analytical
frameworks. This chapter expands on the discussion above by discussing in more detail the
strengths and weaknesses of the GVC and GPN frameworks and the ways they contribute to
the case study analysis. It also presents a lengthier discussion on the different concepts of
power introduced above and a conceptual framework for the role of the state in this GPN
research.
Chapter 3 discusses the wider context and background to this research. Chapter 3
describes the makeup of the electronics industry GPN and its personal computer sector. It
sets out the case for the choice of Penang, Malaysia as the key case study location and
details the importance of the electronics industry in Malaysia.
Chapter 4 presents the fieldwork methodology. It details three distinct research
phases - 1) identifying the case study, 2) conducting fieldwork and gathering primary data
and 3) gathering secondary data - conducted to address the research questions. The chapter
also discusses limitations on the breadth of the research findings and ethical concerns that
may arise to the reader.
Chapters 5 to 9 report and discuss the empirical findings. Chapter 5 is focused on
HP. It presents the governance programme HP has with its suppliers and HP’s capacity to
implement its environmental, health and safety governance agenda. The chapter also
discusses the key drivers for these activities which are tied to its engagement with external
groups/civil society organisations. The findings and analysis on the capacity to implement
governance programmes and engagement with external groups are central comparative
themes throughout the empirical chapters. Chapter 6 focuses on the interviews conducted
with six of HP’s leading first tier suppliers. Of these, one interview was undertaken at the
Western European headquarters of a large supplier while the remaining six interviews were
carried out at the suppliers’ production sites in Penang, Malaysia. Through detailed
30
discussion on the experiences of implementing health and safety governance measures, the
findings from this chapter is contrasted with those of Chapter 5 on HP’s governance
practices in this area. Chapter 7 continues this comparative discussion by focusing on the
health and safety governance experiences of seven second tier suppliers in Penang,
Malaysia. Both Chapters 6 and 7 also discuss the role the Malaysian regulation on
occupational health and safety (OHS) play in their day to day OHS governance experiences.
Chapter 8 examines the role the Malaysian regulation and regulatory agency have in
affecting the governance practices of suppliers in Penang. It presents findings on the
practices and perspectives of the regulatory agencies responsible for occupational health and
safety that have important implications for ensuring proper governance particularly over
lower tier suppliers in Penang.
Chapter 9 reports on the type of influence external groups have on the health and
safety governance outcomes in this GPN. The discussion is divided into two sections. The
first focuses on the level of engagement at the global scale that is mainly targeted at brand
firms such as HP. The second discusses the national and local context of limited
contestation by Malaysian civil society organisations and trade unions. The chapter presents
a complex picture into the role external pressure groups can play in affecting the outcomes
of governance in a GPN depending on their location.
Chapter 10 is the final chapter of this thesis. It provides not only a conclusion but a
bringing together of all the different components of the case study into a wider picture and
story about GPN governance. It does so by first recapping on the key findings of the
research that pertain to the individual research questions. It then fits these various pieces
together into a story of the dynamics of governance throughout a GPN. The wider
implications of this case study and questions for further research are also presented.
31
CHAPTER 2
UNDERSTANDING THE ORGANISATION AND HEALTH AND SAFETY
GOVERNANCE OF GLOBAL PRODUCTION: THE ANALYTICAL
FRAMEWORK
1. Introduction
This study aims to understand how environmental health risks are governed and
managed in the personal computer GPN – in particular the printed circuit board industry -
and how firms, civil society organisations, trade unions and government agencies affect its
outcomes on lower tier suppliers located in Penang, Malaysia. In order to assess and analyse
the wide range of actors and complex set of processes involved in this case study, a robust
conceptual framework that can incorporate and handle the various pieces of the story is
required to guide the analysis of the research findings.
The overarching research question is to understand how a vast globally fragmented
production system such as the electronics industry is governed. Two inter-related conceptual
frameworks that have been used to study governance of global industries are the GVC and
GPN frameworks. Sections two and three discuss these frameworks respectively and their
analytical concepts and approaches. In section two, the GVC governance framework
presented by Gereffi et al (2005) is discussed and critiqued. A discussion of the GVC
literature on the electronics industry namely the idea of modular value chains is presented.
While acknowledging the contribution of this rich literature for understanding the inter-firm
governance relationship between lead firms and contract manufacturers, its limits within a
changing and dynamic industry is also discussed. The critiques of this approach, however,
32
are its inability to accommodate more complex forms of power, changing power dynamics
between brand firms and contract manufacturers, and lack of inclusion of non-firm actors.
Section three sets out an alternate and cognate view of global production using the
GPN framework. I argue that the GPN approach is more suitable for the analytical purposes
of this research (albeit borrowing from the GVC literature on governance of the electronics
industry). The benefits of the GPN framework are the inclusion of non-firm actors as equal
participants in the outcomes of governance, the opportunity to understand the exercise of
power in different and complex ways, and the importance of private governance (standards
and codes) in the GPN literature. The former two features are interdependent. Indeed, a
variety of actors are involved either directly or indirectly in the governance of a global
industry. For example, brand firms set and require private standards and codes of conduct
compliance by suppliers, civil society organisations and trade unions raise concerns over
environmental and labour conditions and call for better governance, and governments are
able to regulate environmental and labour conditions within their borders. The outcomes of
these processes are dictated by power relations. However, the types of power exercised in a
GPN vary with its actors, location and scale. In order to capture this complexity and
diversity, I used three concepts of power to assist with my analysis of the research findings.
They are ‘power over’, the relational ‘power to’, and in the Foucauldian perspective power
as a ‘technology’ or governmentality. In section four, the advantages of using all three
concepts of power simultaneously to understand the processes and outcomes of GPN
governance are presented.
The state is an important and critical actor in understanding GPN governance and its
capacity to influence governance outcomes of those parts of the GPN that are within its
borders. Thus, section five discusses the role of the host country government – Malaysia - in
the regulation and handling of firms within its export processing zones and its treatment of
33
civil society organisations and trade unions. I situate the analysis of the state of Malaysia
within the idea put forth by Aihwa Ong of the ‘postdevelopmental’ state. The strategies of a
postdevelopmental state help to examine the at times conflicting priorities and outcomes of
balancing strategies for economic development in line with globalisation while maintaining
control over its population. Section six concludes the chapter by bringing together the
various concepts presented into a wide conceptual framework that will be used to frame,
guide and analyse the findings of the remainder of the thesis.
2. The global value chain framework
A GVC is defined as “the full range of activities that firms and workers do to bring a
product from its conception to its end use and beyond”2. The GVC analytical framework
aims to understand the various types of inter-firm coordination in globally fragmented
industrial activities (Gereffi et al. 2005). A significant amount of the GVC literature is
concerned with the governance by lead firms on suppliers. Much of the research on GVC
governance has been concerned with the ways in which production standards and
specifications required by lead firms, either to reduce transaction costs, ensure quality
control, facilitate product modularity, or minimise environmental or labour impacts, affects
the participation of suppliers in GVCs. A substantial segment of this literature is focused on
how such standards and specifications affect the upgrading prospects and abilities of
suppliers in the GVC (see Humphrey and Schmitz 2002; Nadvi 2004; Nadvi 2008; Polaski
2006; Ponte 2002; Quadros 2004; and Sturgeon 2002). Others have used the GVC concept
to illustrate how competitive purchasing practices by lead firms impacted the ability of
2 www.globalvaluechains.org/concepts.html
34
suppliers to meet standards and specifications for example over ethics, labour, or health and
safety (see Barrientos 2008; Dolan and Humphrey 2004; Raworth and Kidder 2009;
Ruwanpura and Wrigley 2010; Sum and Ngai 2005).
A seminal piece in laying out a framework for understanding GVC governance is by
Gereffi et al. (2005). These authors proposed a governance typology to describe the ways in
which lead firms coordinate the activities of suppliers through captive, relational, and
modular relationships. These governance forms are determined by three key variables: 1)
the complexity of knowledge transactions, 2) the ability to codify them (and hence degree to
which the complexity of transactions can be minimised), and 3) the supplier capability to
meet customer or lead firm requirements. Within a captive governance relationship, the
complexity of product specifications is high and so is the ability to codify them. Low
supplier capability leads to a high degree of power asymmetry between a lead firm and
supplier since the former must closely control or manage the latter. In a relational
governance relationship, the complexity of product specifications is high and ability to
codify them low. High supplier capability however balances the power asymmetry between
the lead firm and supplier. The relational governance relationship is also characterised by a
degree of trust, long term relationships, and mutual dependency between lead firms and
their highly capable suppliers. The modular governance relationship, which according to the
authors characterise the electronics industry, involves highly complex transactions that can
also be easily codified. Highly competent suppliers also results in low power asymmetry
between the lead firm and supplier. The modular relationships however are not one of long
term and mutual dependency since suppliers are capable of supplying to a large pool of lead
firms (Gereffi et al. 2005).
The GVC governance typology set out by Gereffi et al. (2005) however is not
without its critiques. Ponte and Gibbon (2005) argue that it is only a description of different
35
forms of the coordination of activities between firms rather than a characterisation of the
overall mode of governance in a given GVC. For example, the captive, modular and
relational forms of coordination can all exist within a single GVC. According to the authors,
governance rather is about shaping the rules and conditions of the participation of different
actors within the value chain. Governance, therefore, is the outcome from the use of the
different forms of coordination set out by Gereffi et al. (2005).
There has also been criticism on the understanding of power in the Gereffi et al.
(2005) governance typology. Based on transaction cost economics and with an emphasis on
efficiency, governance and power in the Gereffi et al. (2005) framework operates through
administrative controls, degrees of explicit coordination, and flows of information between
lead firms to suppliers (Gereffi et al. 2005; Levy 2008). Ponte and Gibbon (2005) for
example find power not determined by the type of inter-firm coordination but the degree of
‘drivenness’ by lead firms. The authors note that the use of standards and codes used in
inter-firm coordination does not mean lower power asymmetry or less drivenness, rather a
different form of drivenness. In response to critiques on the Gereffi et al. (2005) approach,
different concepts of GVC governance have been proposed.
Ponte and Gibbon (2005), for example, proposed a GVC governance framework
using convention theory. Convention theory is used to better understand GVC governance
by understanding how changes in quality management, corporate strategies, and inter-firm
coordination are influenced by different sets of norms, expectations and institutions. These
factors shape the rules of firm participation in GVCs. For example, the key conventions for
managing quality are ‘market’ (determined by price), ‘industrial’ (based on standards
established and enforced by third parties), ‘civic’ (based on social and environmental
impacts), and ‘domestic’ (based on trust, brand reputation and geographical origins). Using
these concepts, the authors describe an increasing shift from direct control and rule-setting
36
by lead firms to indirect mechanisms of governance made possible with the use of
standards, codes of conduct, and audits that are guided by industrial-market conventions.
Moreover, GVCs with civic conventions can have civil society organisations and ethical
product marketers influence the division of labour in GVCs. However, civic conventions
can be turned into standards and certifications. There is also a shift within civic minded
GVCs towards a governance approaches in line with the industrial convention.
Kaplinsky (2000) proposed a concept of GVC governance based on principles of
civic governance that is similar to the functions of government. Accordingly, the different
forms of governance in a GVC are legislative, judicial and executive. According to
Kaplinsky (2000), legislative governance is the setting of parameters or the “rules of the
game” for participating in a GVC. Parameters include quality standards and specifications,
price, and delivery reliability as well as social and environmental standards. Judicial
governance is about monitoring and assessing conformance to these parameters or rules, for
example through audits. Executive governance is concerned with activities that assist
suppliers with meeting the parameters. The ability to sanction against non-conformance and
reward positive actions is also important for exercising governance effectively in GVCs.
The different governance functions are not necessarily conducted by a single firm. Rather
they are undertaken by different external actors to the GVC. For example nongovernmental
organisations have been engaged in legislative and judicial governance functions.
These two different concepts not only utilise different ideas of governance and
power, they also widen the GVC governance framework beyond firm to firm relationships
to include civil society organisations, and consumers3. Several other researchers have also
presented a broadening of the concept and scope of GVC governance (see Nadvi, 2008;
Sturgeon, 2009; and the special issue of Economy and Society, 37(3) 2008).
3 Ponte and Gibbon (2005) include consumers as active agents in formulating product quality specifications.
37
A. Modular value chains and the electronics industry: contract manufacturers
and lead firms
Despite the criticisms of the Gereffi et al. (2005) typology there has been a
considerable amount of valuable research on the electronics industry using the framework to
understand the governance relationships between branded lead firms and contract
manufacturers (CMs). As will be discussed in Chapter 3, a significant amount of the
outsourced production by brand firms is undertaken by a handful of large CMs. Sturgeon
(2002) argued that the governance relationship between brand firms and CMs is modular.
This is due to the modular production architecture of the industry whereby information
exchange is highly formalised and based on open and de facto standards. For example,
information on product specifications for components, such as printed circuit boards, is
codified and standardised. This is the case also for highly complex product specifications
that include the transfer of tacit knowledge and where “thick information flows are
narrowed down to a codified hand off at the inter-firm link” (Gereffi et al. 2005: 88). The
Internet and computer programmes also aid the relatively easy flow of complex information
between firms (Gereffi et al. 2005; Sturgeon 2002).
Due to the high degree of product modularity in the electronics industry, CMs are
situated in a production niche that allows them to cater to a wide range of customers. This
niche is characterised by a set of ‘generic’ capabilities that are focused on producing ‘base
components’ such as memory chips, ‘base processes’ such as printed circuit board assembly,
and services that are needed across an array of products in the industry. CMs do not receive
much instruction from their customers. They have their own manufacturing processes,
38
purchase their own supplies, and have autonomous financing mechanisms. Because CMs
can cater to a wide customer base, it reduces their dependence on any single customer.
Similarly, the highly standardised nature of production and process technologies also means
that branded firms can easily switch amongst CMs. However, given their ability to supply a
wide range of customers, CMs can easily make up for a lost or reduced contract with one
customer by supplying others. As a result, power asymmetry between lead firms and CMs
are low and firm relationships are not necessarily based on trust or are long-term (as is the
case with the relational governance relationship).
While the modular relationship may seem similar to an arm’s length market based
arrangement, the difference is in the highly complex and rich information that flows
between customers and CMs. In arm’s length transactions, information exchange consist
mainly of prices and specifications. The ability to codify complex information and the high
capability of suppliers to meet them sets modular value chains apart.
B. Limits to the modular value chain concept
While the work of Sturgeon (2002) and Gereffi et al. (2005) provide a base for
discussing governance relationships between lead firms and CMs in the electronics industry,
recent analyses have questioned the exact nature and dynamics of these relationships. As
product specifications have become more complex and less standardised, the electronics
industry may be facing limits to product modularisation and codification (Ernst 2005;
Gereffi et al. 2005; Sabel and Zeitlin 2004). Moreover, when taking a closer look at inter-
firm relations, CMs have been shown to exhibit cooperative, interdependent, and strategic
relationships with lead firms. There have also been signs of dependency by lead firms on
39
CMs as the latter have bid and won contracts to be the sole supplier of a particular product.
For example, Foxconn – the world’s largest contract manufacturer - is the only manufacturer
of the iPhone and iPad for Apple. The size and capability of Foxconn to manufacture a
product that requires complex assembly lines and supply chains made breaking away from
such as supplier very difficult even after eighteen worker suicides at a Foxconn factory in
Shenzhen, China in 2010 (Wong et al. 2010; Murphy 2010). Similar signs of dependency by
lead firms on CMs have been seen in other industries (see Fold 2002; Hess and Coe 2006;
Yang and Coe 2009).
Appelbaum (2008: 82) in a discussion on the rise of giant contract manufacturer
factories in East Asia called for “the need to better understand how and to what extent
global production networks for consumer goods are being managed by Asian-based
multinationals, and what this implies for the governance of Gereffi’s classic buyer-driven
commodity chains... the post-Fordist era of highly networked production among small,
flexible units is being challenged by the emergence of giant factories”. Nadvi (2008) also
challenged the characterisation of low power asymmetry between lead firm and suppliers in
modular value chains. Nadvi (2008) showed that company codes of conduct and
international standards were used in order to have greater not lesser control over suppliers
on their environmental and social conditions. This is particularly the case for brand firms
that face higher risk and vulnerability to supplier non-compliances, for example from civil
society organisation campaigns.
3. The global production network framework
40
When it comes to understanding how governance of a globally fragmented industry
is affected by power asymmetries, the GVC framework only goes so far. Its focus is on
inter-firm coordination and relationships and actors such as civil society organisations,
labour unions and government agencies remain external to the GVC. However, non-firm
actors play an integral part of the governance structures of global industries. Not only are
they external actors ‘out there’ affecting the broader societal, economic and cultural
environments in which firms operate in, they also interact with firms and production
systems directly in ways that can affect and influence how governance takes place
throughout a GVC. As a result, what is further missing from the Gereffi et al. (2005) GVC
governance framework is the use of more complex notions of power and the consideration
of non-firm actors as integral players in the governance outcomes of global industries. This
section presents the GPN framework that fills in these gaps and provides an analytical
framework better suited for understanding the multi-actor and multi-power complexities of
governing the global production system examined in this research.
With its roots in the GVC framework, the GPN was introduced by researchers at the
University of Manchester as an analytical framework for understanding economic
integration and its accompanying asymmetries of economic and social development (Coe
2011; Henderson et al. 2002). Originally, it aimed at moving beyond state-centric analyses
of economic development by better understanding globalisation and the processes of
globalised production through the actions of firms, particularly in developing countries.
Henderson et al. (2002) highlighted the “need to study what firms do, where they do it, why
they do it, why they are allowed to do it, and how they organise the doing across different
geographic scales” (438). In contrast to the chain concept, a ‘network’ approach is used over
a ‘chain’ as it is more appropriate in capturing the “horizontal, diagonal, as well as vertical –
forming multi-dimensional, multi-layered lattices of economic activity” (Henderson et al.
41
2002: 442). A network approach also allows for a more complex analysis of power
asymmetry between different actors and under varying structures and institutions (Dicken et
al. 2001).
In later years, a GPN was defined by Coe et al. (2004: 471) as “the globally
organised nexus of interconnected functions and operations by firms and non-firm
institutions through which goods and services are produced and distributed” (emphasis
added). Further, the intertwining of places and flows involved in the contemporary
organisation of economic activities required an analytical approach that
“must be able to incorporate the complex actions and interactions of a variety of
institutions and interest groups – economic, political, social, cultural – which operate
at multi-scalar levels and territorialities and through dynamic and asymmetrical
power relationships to produce specific geographical outcomes: the material world in
which people struggle to make their lives” (Coe et al. 2008: 271).
While places are transformed by flows of capital, labour, knowledge, and power, the
institutions and cultures of places are in return transformed by those very flows that settle in
them. In this regard, the notion of embeddedness has also become an important concept in
GPN research by economic geographers. Actors and processes within GPNs are shaped by
societal (cultural, economic, and political institutions), territorial (local, national, and global
scales), and network (strength and importance of actor relations) embeddedness (Hess and
Coe 2006). Societal embeddedness in particular can be an important influence over power
relations, network configurations, and governance structures of GPNs (Hess and Yeung
2006; Hughes et al. 2008). These aspects of embeddedness are reflected on in various ways
42
throughout the thesis as the following sections on the various concepts used in the analytical
framework show.
There are three important ways in which the GPN framework is well suited for the
analytical requirements of this research (and which differs from the GVC framework). First,
the framework incorporates external or non-firm actors as equal participants in the shaping
of GPN governance. Second, the GPN framework recognises the multiple and complex
power relationships at play among the various actors. Third, its approach to the analyses of
standards and codes is focused in its institutional setting and the role non-firm actors can
play in their outcomes. The following sub-sections discuss in further detail each of these
three approaches in the GPN literature.
A. The role of non-firm actors in GPNs
This section discusses the role of two sets of key non-firm actors that play equally
important roles in shaping the governance practices in the electronics industry GPN and in
the case study of HP suppliers in Penang, Malaysia. The first sub-section discusses the GPN
literature on civil society organisations and labour union engagements in GPN governance.
The second sub-section discusses the role of the state in GPN governance and presents the
concept of the ‘postdevelopment’ state to characterise Malaysia.
i. Civil society organisations and labour unions
The GPN framework aims to capture the complexity of interactions and relationships
between firm and non-firm actors. Non-firm actors are considered constituent parts of
production systems and an equal force in shaping the governance outcomes of GPNs (Coe et
43
al. 2008; Henderson et al. 2002; Hess and Yeung 2006). Indeed, CSOs and labour unions
participate in the making of global standards (especially process standards on social, ethical,
and environmental conditions), in monitoring their enforcement, and assisting with
compliance. They can also create sanctions for non-compliance for example through
negative publicity and boycotts. This requires them to also engage with firms and
governments in complex networks than can be either supportive or plagued with conflicts of
interests (Nadvi and Wältring 2004). At the global scale, international CSOs have worked
with national and local CSOs in various nodes of a GPN. These new forms of multi-scalar
networks help increase the collective power of CSOs (see discussion on ‘power to’ below)
to tackle governance over MNCs in GPNs that are not always easily regulated by
governments (Barrientos 2007).
While it is clear that CSOs and labour unions engage in GPN governance processes,
Levy (2008), however, finds much of the GPN literature focused on governance as a form of
economic coordination without enough attention paid to governance as a result of political
contestation. Levy (2008) notes that contestation is a key aspect of GPNs given they are
“contested organisational fields in which actors struggle over the construction of economic
relationships, governance structures, institutional rules and norms, and discursive frames”
(ibid: 944). Because GPNs link different regions with differing “incomes, labour practices
and consumption patterns” contestation around social concerns inevitably arise (ibid: 944).
More importantly, the power asymmetries and income imbalances and tensions of GPNs
become opportunities for challenging and influencing its structures and processes (Levy
2008).
CSOs and labour unions politicise GPNs when their campaigns expose or connect
firm activities and practices to harmful working conditions and environmental impacts in far
away developing country locations (Gereffi et al. 2001; Levy 2008; Neilson and Pritchard
44
2009; Prince and Dufty 2009). Production site decisions can also be influenced from the
presence or absence of organised labour. Despite the importance of these various non-firm
actors, there is a lack of attention paid to contestation by labour and CSOs in the GPN
literature (Coe et al. 2008; Cumbers et al 2008). The few examples of GPN research focused
on contestation include Franz (2010) on the effective strategies of protest group campaigns
in curbing the expansion of supermarkets in India and Rainnie et al. (2011) on how workers
and trade unions, by understanding the geographical role of specific nodes in a GPN,
identified weaknesses or ‘choke points’ for strategic and effective action.
Contestation however is not always predictable and can be contradictory and
complex. For example, CSOs and labour unions can simultaneously engage in negotiations
with firms while opposing them in global campaigns (Barrientos 2008; Barry 2004; Coe et
al. 2008; Henderson et al. 2002). Labour unions may compete with each other in different
countries while participating in international federations and alliances or sign international
framework agreements with global firms (Cumbers et al. 2008). How the complex nature of
contestation and the role of non-firm actors in GPN governance needs to be better
understood and be an integral part of research on GPN governance (Coe et al. 2008).
ii. The state and GPN governance
There has been a debate on the demise of the state in governing over global issues
especially as MNCs and CSOs exert greater influence over social, environmental, economic,
political, and cultural conditions in different parts of the world. Indeed, in the global
standards movement on environmental and social concerns, national state institutions rarely
participate in defining, negotiating, and implementing such standards (Clark and Tickell
2005; Nadvi 2008). Corporations that develop their own ‘laws’ through standards and other
45
instruments such as contract law and international arbitration procedures have been regarded
as a form of non-public power that have created a ‘divided sovereignty’ between firms and
nation-states. These ‘quasi-state authorities’ arise out of a lack of a world state or
government in the face of global risks and problems (Beck 2005).
However, the state is not completely absent in the governance of global risks and nor
is it desired. Beck (2005: 8) contends that civil society is not substituting the powers of the
state, rather there is a “kind of symbiosis between civil society and state” that he calls a
“cosmopolitan state”. Indeed, the nation-state is a key actor that can regulate parts of a GPN
for example by engaging in negotiations over firm investments (Coe et al. 2008; Dicken et
al. 2001). In recent GPN analyses, researchers have called for greater attention to the geo-
political economy and inter-state competition processes shaping the outcomes of GPNs
(Glassman 2011; Gellert 2003). An understanding of the political economy of a particular
state can help highlight the capacity and interests by governments to regulate. Mayer and
Pickles (2010) find that GPNs require hybrid regulatory structures that involve both public
and private governance. The authors place a greater emphasis on the former given the limits
of existing and tried private governance mechanisms. While there is considerable discussion
of the lack of capacity, expertise, and resources for proper enforcement of regulations in
developing countries, some developing countries have updated and re-regulated their laws
for example on labour (Posthuma 2010). Developing country government agencies are also
engaging with foreign companies in what Posthuma (2010) refers to as a ‘second
generation’ governance model.
Indeed, the host state is an important factor to consider in the analysis of GPN
governance. As this case study will show, including the host state is an essential part of
understanding societal and territorial embeddedness in a GPN. Its ability to monitor
standards in particular over labour, participate in the making of those standards, and enforce
46
regulations can have important influences in the governance practices and outcomes in local
spaces. This requires a certain regulatory capacity in order for the state to be an effective
regulator over working conditions. The state also faces new institutional arrangements
which require engaging and entering into dialogue with other non-governmental actors such
as firms, CSOs, and labour unions in a growing number of public-private governance
regimes. Unlike quality standards, the making and monitoring of social (and environmental)
standards often require participation by various actors with different sets of competencies
and which can lend more legitimacy to the governance tool (Nadvi and Wältring 2004).
This is particularly the case with what Nadvi and Wältring (2004) refer to as the ‘fifth
generation’ of social standards where government supported or initiated business and CSO
partnerships have created social standards such as the Social Accountability 8000, the Fair
Labour Association, and the Ethical Trading Initiative. Thus the private and public
governance relationships and dynamic between the state, firms, civil society organisations,
and labour unions is an important characteristic of GPN governance.
At the same time, the insertion of local places into a GPN can weaken the ability of
host governments to regulate working conditions. Local suppliers often find their decisions
over employment and working conditions are dictated more by the requirements over cost,
quality, and delivery set at the top of a GPN by multinational lead firms (Barrientos 2007).
Thus, GPNs can create challenges for host government control over labour in their borders.
GPNs can also affect the ways in which host governments undertake the bargaining
process between capital and labour. This, in the case of the Malaysian state, is reflected in
its ‘postdevelopmental state’ strategy. The sub-section below introduces this concept as a
theoretical basis for analysing the host state of Malaysia. It is important to accurately
understand the local context or societal embeddedness in which lower tier suppliers are
being (or not) governed. The following sub-section aims to do so.
47
iii. The postdevelopmental state
Southeast Asian developing countries that have experienced enormous economic
growth and poverty reduction in the past few decades have been described as
‘postdevelopmental states’ by Aihwa Ong (1999a, 2000). Ong (1999a, 2000) rejects the
notion that state power is diminishing or retreating. Rather relationships between
governments and capital have become more flexible and complex. Southeast Asian
governments, after achieving a certain level of industrial development, are said to have
created new economic opportunities, social spaces, and political constellations as a result of
the interactions between the demands of global corporations and global regulatory entities.
The postdevelopmental state strategy is one where governments loosen their control
over development goals by turning them into technical projects to be realised through global
capital and by enterprises while retaining strategic control over the country’s resources,
populations, and sovereignty. Asian state governments are in partnerships with MNCs and
selectively adopt neoliberal practices in their regulation of society and social control of its
population to meet objectives such as the development of a middle class in order to compete
in the world economy (Ong 1999a, 1999b, 2000). Ong (1999a: 21) describes the Asian tiger
countries as having been “aggressively seeking global capital while securing their own
economic interests and the regulation of their populations”. In Malaysia, for example, this is
done by producing “technically proficient and socially unified citizens [that are] attractive to
capital” (Ong 1999b: 65). The Malaysian government aimed to do so by building skills and
expertise attractive for MNCs, promoting education, entrepreneurship and piety particularly
by the Malay majority of the population (Ong 1999b). In other words, a state’s economic
strategy is connected to its regulation of society.
48
State society relations and engagements are also differentiated when it comes to
civil society organisations and labour. As will be discussed in more detail in Chapter 9, the
strategy in a postdevelopmental state like Malaysia includes strict laws against political
activism and draconian measures against labour in favour of MNCs while accommodating
to foreign firms and their power to receive favourable host country regulatory standards.
The state is able to maintain such harsh controls over civil society organisations and labour
through the assurance of a high standard of living which it uses to gain loyalty from its
citizens (Ong 1999b). Indeed, a complex interaction between public and private governance
is at play in Malaysia which has important outcomes for governing firms in local spaces.
These interactions are part of what Ong (2000: 56) describes as a key part of the
postdevelopmental state strategy called ‘graduated sovereignty’. Ong (2000) defines
graduated sovereignty as:
“co-existing strategies of government [attuned to the workings of global markets]
within a single national space. There is discipline in the Foucauldian sense, there is
labour discipline in the old sense; there are zones of corporatist power and zones of
special production; there are ‘brown’ spots of neglect and heavily militarised sites of
insurgency.” (Ong 2000:72)
Graduated sovereignty therefore describes how state interactions with global
forces/globalisation have led to different forms of sovereignty that are characterised by their
flexibility. There are two key features of graduated sovereignty in Southeast Asian states
such as Malaysia. First, states have established different ‘zones’ or segments of the
population that are governed and afforded rights differently. The variation is based on the
types of citizens the state wants to produce that are desirable for global capital. While some
49
segments of the population are invested in heavily with resources (for example the ethnic
Malays or ‘bumiputras’) others are neglected (such as the ethnic Indian minority). Second is
the assuming of certain aspects of state power and authority by foreign corporations. The
latter takes place within special production and technological zones such as free trade zones
that compromise national sovereignty. In Malaysia, for example, firms negotiate with the
national industrial development authority that can and have resulted in requirements such as
the suppression of union activities or allowing corporate disciplining to curb worker
activism (see more discussion on this in Chapter 9). Such zones are attractive to MNCs
because states, in addition to forming strategic alliances with global firms, provide “sites
that are linked to global ‘commodity chains’ for the production of a variety of low and high-
tech goods” (Ong 1999a: 216; 2000). How this postdevelopmental state strategy affects
GPN governance is an important piece of this particular case study.
This sub-section has presented a complex picture of the public and private
governance relationships between the Malaysian state and firms on the one hand and the
Malaysian state and civil society organisations and labour unions on the other. While the
Malaysian state has exhibited a relatively more accommodating and cooperative relationship
with MNCs quite the opposite is true when it comes to state relations with local civil society
organisations and labour unions. The latter outcome, in addition to preventing the exercise
of collective power against capital, also limits the ability of civil society actors to connect
with actors at global scale such as larger international CSOs in order to influence MNCs in
Malaysia and affect GPN governance in local spaces such as Penang. This issue will be
explored in more detail in Chapter 9.
B. Multiple and complex power relationships in a GPN
50
Various forms of power can operate within a GPN. Henderson et al. (2002)
discussed three key sources of power that are implicated in value enhancement and capture
in GPNs. They are corporate power where lead firms have power over their suppliers.
Second is institutional power, which is exercised by national and local states, international
inter-state agencies, international organisations (such as the Bretton Woods organisations),
the United Nations agencies, and international credit rating agencies. Institutional power can
also influence investment and other decisions of lead firms. Third, collective power is
exercised by collective agents, such as CSOs and labour unions, normally as countervailing
power against firms, governments, and international agencies.
Coe and Hess (2006), expanding on these three sources of power, discussed their
exercise in three forms of governance: intra-firm, inter-firm, and institutional and political
governance. Power ‘over’ is used to understand the capacity held by firms in GPNs. Another
form of power, power ‘to’, is a networked concept of power that arises from a group of
actors, and power as a technology is exercised through the institutional environment of a
GPN.
While much of the GPN research for example in economic geography conceptualises
power as relational in a network approach Dicken et al. (2001) warns us not to lose sight of
the importance of structural arrangements, which can constrain or support GPN
relationships. As noted by Levy (2005: 692), GPNs present
“a shift in the distribution of resources and the balance of power between and among
firms, countries, and social groups. These strategies are intertwined with more conventional
forms of political power, as market structures are embedded in social relations that, for
example, position the state as a promoter of corporate rather than national interests and
constrain the ability of unions to challenge the process of international economic
51
restructuring.” This is particularly true in this case study where state and society relations in
Malaysia that consists of an economic strategy with conflicting priorities and suppression of
civil society and labour activism creates a particular context in which ensuring governance
of lower tier suppliers in Penang faced unique challenges.
Further, because the way power is exercised can vary in a GPN, Henderson et al.
(2002) finds GPN governance highly variable. Without more research, “it is premature to
move towards a conceptual closure of network governance structures” (ibid: 454). Thus,
asymmetries in power and positions in GPNs are never static. Indeed, within GPN research,
power and governance is characterised by its complexity, dynamism and may require
different and simultaneous conceptualisations of power (Coe 2011).
C. Standards and codes of conduct in the governance of GPNs
The GPN literature recognises the importance of private standards and codes on
technical and organisational innovations and environmental and labour conditions in
shaping GPN governance structures (Coe and Hess 2006). For example, global firms adopt
firm-based environmental standards as a more efficient and less costly way of managing
their suppliers when faced with different local and national environmental regulations
(Angel and Rock 2005).
The development and implementation of private codes and standards involves many
actors such as states, civil society organisations, labour unions, and consumers that are
embedded in varying institutions and social contexts (Coe et al.2008; Coe 2011; Cumbers et
al. 2008; Franz 2010; Henderson et al. 2002). The actors involved can also be located in a
variety of scales within the GPN – local, regional, national and at the international level.
Thus, complex institutional arrangements link the multiple scales across which standards are
52
negotiated and applied. On the latter point, standards can impact different points or nodes of
a GPN in different ways, for example, by being applicable in only certain jurisdictions or
territories (Coe and Hess 2008; Coe et al. 2008). Similarly, they can also be implemented or
enforced varyingly in different scales and nodes of a GPN.
4. Three key concepts of power
Relationships and social interactions in GPNs involve tension and the ways in which
they are negotiated and dealt with by different actors is influenced by their power relations.
Hess (2008) contends that understanding GPN governance requires the simultaneous use of
various concepts of power. Indeed, some GPN researchers have taken a multiple approach
to understanding power and governance, mainly combining ‘power over’ to understand the
market and economic powers of lead firms and ‘power to’ with regards to the collective
powers of ‘weaker’ agents and actors such as small and medium sized enterprises and civil
society organisations (see Barrientos and Smith 2007; Rutherford and Holmes 2008; Weller
2006). However, combining a third concept of power as ‘technology’ or the Foucauldian
governmentality perspective is less common, which according to Hess (2008), may be due
to the lack of analyses of what goes on inside a firm.
In this thesis, I use the concept of ‘power over’ to examine the governance and
power relationships between firms in the GPN. This is done particularly on the governance
relationships between lead firms (HP) and first tier suppliers given the more direct
interaction over standards and codes between them. The idea of ‘power to’ is used to
examine the relationship external groups such as civil society organisations and trade unions
have in affecting the governance practices in the electronics industry. Finally, the
53
perspective on power through the governmentality lens is used to examine the micro scale of
governance that takes place in the GPN. The governmentality perspective is used to
understand how power is exercised through specific governance techniques, such as audits,
that are used by firms throughout the GPN and also comprise an important part of intra-firm
relationships and the day to day governing activities of safety and health officers (SHOs) in
the Penang supplier sites.
The following three sub-sections will discuss each of these three concepts of power
to better understand the various processes of macro, network, and micro levels of the
economic, social and political processes of GPN governance. Because the concept of power
as ‘technology’ from the Foucauldian governmentality literature is less often used in GPN
research (exceptions include Dolan 2008; Hughes 2009; Larner and Le Heron 2004;
Rudnycykyj 2004), a lengthier discussion on its appropriateness for this research is
presented.
A. “power over”/inter-firm
From the realist tradition power over is a concept of power as a capacity of
economic resources or political standing held by persons or institutions that can be used to
determine the outcomes of others. This form of power is exercised through a legitimised
(central) ‘authority’, which can be delegated across space, and leads to domination over
others. This concept of power originated with Max Weber who applied it with nation-states
that are characterised with having ‘legitimate domination’ (Beck 2005).
54
Power over is also seen to be a form of power held by global firms through their vast
economic resources and ability to influence the outcomes of others with decision on foreign
investments and influence on who can and cannot participate in their GPNs (i.e. they can
create and destroy jobs) (Beck 2005). In this era of globalisation global business actors have
renegotiated and increased their transnational power vis-a-vis nation-states. Indeed,
multinational corporations (MNCs) are said to dominate through their sought-after-
investments in nation-states and the threat of non-investment or relocation of investment
(referred to as the ‘exit option’), provides a strong base for their power. It is precisely
because MNCs are mobile and incorporated in GPNs that allows them to play countries off
each other for their investments. Unlike nation-states, however, the power held by global
firms does not require political or democratic legitimacy or authority. However, their lack of
legitimacy is what makes “global business actors highly prone to worldwide movements of
resistance and anti-globalisation coalitions of the most heterogeneous kind...” (Beck 2005:
57).
Power over is frequently used to describe inter-firm relationships where lead firms
have power over or control over their suppliers. Firm or corporate power is also associated
with greater market power in monopolistic and oligopolistic situations, financial assets,
corporate strategies, technological leadership and large investment in brand development
and as beneficiaries of favourable state policies that lead to their ability to capture value in
GPNs. Power over is generally seen to lead to negative outcomes for the dominated. When
applied in studies of GPNs there are winners and losers (Allen 2003; Hess 2008; Lukes
2005; Sturgeon and Kawakami 2010). However, one of the main critiques of this concept of
power is the assumption that the more powerful will always win over the less powerful. This
concept of power also does not provide room for resistance and other forms of political
55
intervention such as negotiation (Allen 2003). It is to this form of counter-power that we
turn to in the next sub-section.
B. “Power to”/networked-relational
The networked-relational power to concept has been used most often in the GPN
literature (see Coe et al. 2010; Yang and Coe 2009; Franz 2010). Hess (2008: 455-456)
finds that
“thinking of power in a networked, relational sense (‘the power to...’) provides an
opportunity to consider the contingent, politically contested nature of global
production networks and possibilities for various constellations of actors to change
their fortunes and achieve their respective goals”.
The concept of power to is network based that is a “relational effect of social interactions”
(Allen 2003: 2). In contrast with power over, power to is not the possession of resources and
capabilities but rather is power that is exercised through them. The resources behind power
over then act as the medium for power to. These resources may not always be generated by
those actors that use them to mobilise collectively. What is important is the strength of
relationships between actors, their collective aims, and their ability to mobilise resources
across networks. Opposed to the winner-loser outcomes of power over, power to is a means
of enablement that allow actors to work together towards a common goal. In this way it
allows for win-win possibilities. This positive characteristic has the potential for
empowerment even for everyone involved (Allen 2003; Allen 2004; Hess 2008).
56
Civil society organisations in global advocacy movements, for example, gain their
power precisely because they are organised as a network of actors. Civil society
organisations and global civil society movements utilise their networked counter-power to
capital/global corporations to mobilise global public opinion. Advocacy movements do not
have economic or political power. However, part of their power stems from their credibility
in telling the truth of the injustices and other social and environmental harms affecting
humanity. Their creation of public awareness through the use of legitimate information
affords them legitimacy and is a source of their power (Beck 2005):
“In other words, it is the way advocatory movements deliberately and strategically
link information and legitimation as a strategy of global public awareness that
determines their position in the power triad alongside the strategies of capital and
those of the state” (Beck 2005: 239)
Beck (2005) also discussed the organising of the ‘political consumer’ by globally
organised civil society movements and campaigns as potent forms of counter-power to
capital or global business. This exercise of power is done through the refusal or non-
purchase of services and goods from particular firms. The ‘consumer strike’ or boycott is a
strong form of counter-power that ‘can strike anywhere and everywhere in the world’ and
‘capital is largely at the mercy of the politicised global customer’ (Beck 2005: 238, 237).
This form of power, however, is limited by the difficulty of organising consumer resistance
and limited resources of civil society organisations (Beck 2005).
Finally, because civil society organisations are organised globally, they are also able
to play states and global corporations off one another. Civil society organisation campaigns
57
on human rights for example can apply pressure on the authority and legitimacy of other
countries.
C. Power as ‘technology’/governmentality
Power as ‘technology’ arises from the Foucauldian/governmentality literature as an
immanent, organic and net-like concept of power (Allen 2003; Lukes 2005). In contrast to
more conventional approaches, power in this sense is not possessed by individuals, capital
or the state. It is not hierarchical or top-down but rather fragmented and manifests itself in
the ways in which people internalise forms of control and discipline set upon them by
others. Unlike power over and power to, which are external forces of power, power in the
governmentality perspective is internalised and works through or within subjects (Hess
2008). Foucault used the term ‘governmentality’ to describe the outcome of a change in the
way of governing during the mid 18th century. This change led to a preoccupation of how to
govern oneself, how to be governed, and how to govern others. The objective of governance
became one of managing the population or individuals through knowledge and technical
means or ‘techniques’ (Foucault 1991). Techniques are used to lead or control the conduct
of individuals indirectly by making subjects responsible for their own governance through
self-regulation. For example, individuals are held responsible for their own risks such as
illness, unemployment, and poverty (Lemke 2002).
In the era of neoliberal governance techniques, in particular calculative techniques,
such as indicators, standards, certifications, performance measures, and benchmarks turn
‘the social’ into something that can be recorded, calculated and compared in order to make it
governable (Higgins and Larner 2010; Rose and Miller 1992; Townley 1998). These
58
techniques can turn complex societal conditions, such as labour conditions, into quantified
and standardised conceptual and categorical forms that can be easily governed for example
through ‘checklists’ (Blowfield and Dolan 2008).
Many of these mundane techniques are used in the governance of GPNs (Higgins
and Larner 2010; Larner and LeHeron 2004; Rose 1999). Take the audit as an example of
how power is exercised by performing this activity. Audits are performed by firms to check
that systems of information gathering and tracking are in place for management systems on
labour and environmental conditions for example. While this ‘control of control’ of the audit
may not in reality meet its purported goals and objectives (labour and environmental
standards) or provide much information, its ‘taken-for-granted” and “common sense”
approach and production of comfort in the face of risks affords the audit little scrutiny and
question (Power 1997). Indeed, many have documented the ineffectiveness of audits and
auditors in capturing the true situation of worker conditions in factories for example (see
Barrientos and Smith 2007; Hughes 2009). However, the audit remains a key tool of
governance used by firms. According to Power (1997: 10), “the power of the idea of audit
and its ready exportability from the financial auditing context depends on a certain
vagueness about its scope and meaning”.
Calculative techniques create forms of visualisation or representations on paper,
such as models, calculations, indicators and statistical representations (Barry 2004). This
aspect of ‘visibility’ and making activities ‘explicit’ leads to a further interesting aspect of
governmentality research – the use of techniques to govern from a distance. Calculative
techniques help make visible the distant activities of individuals by producing numbers and
data that can travel across space and be used for comparing the performance of individuals,
firms, industries, and states (Rose 1999; Larner and LeHeron 2004).
59
Governing at a distance also implies a centre of control or ‘centre of calculation’.
‘Centres of calculation’ is where information gathered from the calculative techniques are
sent to and accumulated. Those at the centres, for example manager’s offices, hold power
from their capacities to make plans, calculations and strategies based on the information
provided. They are considered to be “in the know” and as experts in what they seek to
govern which provide them with legitimacy over their (governance) plans (Rose and Miller,
1992). In GPNs, managers at firm headquarters guide the behaviours of manufacturing and
supplier sites by relaying norms, standards, and constraints. In return actors in the
manufacturing and supplier sites report back to central headquarters the results from
calculative techniques such as audit reports, performance measurements and other
indicators. In this way firm headquarters function as ‘centres of calculation’ and those
located in manufacturing and supplier sites become ‘objects of calculations’ (Rose 1999).
Larner and Walters (2004) find the use of governmentality with other research areas,
such as GPNs, offering new insights and perspectives on the governance of international
spaces. Standards, certification schemes and audits are key techniques used in the
governance of GPNs for a variety of objectives such as quality standards, fair trade, and
environmental and labour conditions. The few GPN researchers that have used the
governmentality perspective have shown how various calculative techniques are key in
governing at a distance, which is critical for managing GPNs (see Blowfield and Dolan
2008; Feakins 2007; Higgins and Larner 2010; Hughes et al. 2008; Hughes 2001; Hughes
2009; Larner and Le Heron 2004; Ouma, 2010). For example, Larner and LeHeron (2004)
showed how the technique of benchmarking makes the ‘incommensurable’ such as regions,
organisations, and individuals ‘commensurable’ thereby creating global economic spaces
and domains that are comparable and hence governable under the rationale of international
competitiveness (214, 215). According to the authors the power of calculative techniques
60
such as benchmarking is not on “how the numbers are produced ... [rather] how they travel
and the work they do” across borders (219).
I use the perspective of governmentality to understand how safety and health officers
(SHOs) in supplier sites in Penang are implicated in the day to day micro forms of power
exercised through calculative techniques. The far away headquarters to which SHOs report
to function as ‘centres of calculation’. These centres of calculation govern at a distance
which is made possible through calculative techniques that turn the issue of worker health
and safety into a domain that can be governed through numbers. SHOs therefore are not
only the governors over the health and safety of workers at the supplier sites in Penang but
they are also themselves governed by their headquarter counterparts. The governmentality
lens and understanding of power exercised through techniques allows for the understanding
of SHOs being subjected to an indirect form of control through self-governance that is self-
disciplining.
5. Conclusion
This chapter has discussed the various components of an analytical framework that
are used to guide analysis of the research findings. While the foundational framework used
is the GPN, important insights from the GVC literature in particular on inter-firm
governance relationships in the electronics industry informs an important part of the
discussion.
This case study examines the role of firms, civil society organisations, trade unions
and government agencies in the environmental health and safety governance outcomes of
the HP led personal computer GPN. Interactions and exchanges between various
combinations of these key actors involve different forms of power relationships. The
61
analytical framework I use recognises and considers three forms of power being
simultaneously exercised and at different scales of the GPN. First, ‘power over’ speaks to
the more macro outcomes between lead firms and their suppliers. This part of the analysis is
informed by the GVC literature on modular production networks, which characterise the
governance relationships between lead firms and their first tier suppliers (mainly contract
manufacturers).
Second, the relational and networked ‘power to’ addresses contestation by external
non-firm actors such as civil society organisations and trade unions at the global and
national/local scales. Non-firm actor play a role in the outcome of GPN governance. Thus
how civil society organisations and trade unions contest the use of certain standards and
codes in the GPN is an important aspect of research on GPN governance.
Third, a Foucauldian concept of power as governmentality taps into the microcosm
of the safety and health officers/managers that undertake the day to day governing of health
and safety within the factories. This concept of power plays an important part of this
research analysis given the breadth and in-depth data and knowledge gathered from many
fruitful interviews with safety and health officers/managers.
The case study also considers how the host country government of Malaysia affects
and contextualises GPN governance in its borders. This examination is informed by the
understanding of Malaysia as a ‘postdevelopmental’ state. How this plays out in its
governance actions over health and safety of the electronics industry in Penang is an
important discussion in this thesis.
Taken together, the various ideas and concepts presented in this chapter come
together to form a robust analytical framework that aims to show how the different dynamic
pieces of governance relations situate, affect, and challenge GPN governance. After an
examination of the empirical findings in the following chapters (Chapter 5 to 9), the
62
different parts of the case study will be presented in a coherent wider picture in the final
chapter of this thesis.
63
CHAPTER 3
THE GLOBAL ELECTRONICS (PERSONAL COMPUTER) INDUSTRY AND ITS
IMPACT ON THE MALAYSIAN ECONOMY
1. Introduction
This chapter aims to provide the background context for the sector focus of this case
study. It provides the key characteristics of the electronics industry and its personal
computer (PC) GPN, the electronics industry in Malaysia and Penang, the printed circuit
board industry and its health impacts, and the governance and regulatory responses available
for safeguarding workers against health and safety risks in electronics factories in Penang.
Discussion on the affects of external actors on the governance outcomes of the GPN is
provided in Chapter 8 on the Malaysian regulation and regulatory agencies and Chapter 9 on
civil society organisations and trade unions.
Section two describes the globally fragmented electronics industry and the different
types of firms constituted in its PC global production network. Section three sets out the
case for choosing Penang, Malaysia as the case study location. It details the dynamics of the
electronics industry in Malaysia, which has been a significant industrial sector since the
1970s. The section chronicles the key phases in the development of the industry from its
early growth stages to the challenges faced by Malaysian firms and their inability to move
into higher value added activities more recently (see Figure 3.1). Section four focuses on the
electronics industry in the state of Penang, which has been called the ‘Silicon Valley’ of
Malaysia and where the majority of my fieldwork was conducted. This section describes the
historical beginnings of the industry with the development of Free Trade Zones in the state
64
and how the industry was shaped into the key sector for the Penang state economy. Section
four also discusses the continued dominance of the domestic industry by small and medium
sized enterprises (SMEs). These firms have neither grown into larger firms nor moved up
the value chain. Section seven concludes the chapter.
2. The global electronics industry
The global electronics industry is one of the largest industrial sectors in the global
economy. One of the key features of the industry is its tremendous use of outsourcing and
subcontracting, which has led to vast and complex GPNs. The rise in outsourcing and
subcontracting since the 1980s is the result of the restructuring of business strategies by
multinational corporations (MNCs) in the face of growing global competition and volatile
markets. MNCs, particularly brand firms in developed countries, began to separate
management from production activities within their organisations to focus on “core
competencies”, such as research and development, product design, and brand management
and marketing. With help from technological advancements, particularly in communication
and transport, and the standardisation, commoditisation and automation of certain
production functions, MNCs were able to de-link or separate various stages of production
processes and move manufacturing activities to lower cost locations while managing them
from distant headquarters (Levy 2005; Milberg 2004; van Liemt 2007). While this was
initially done through offshoring or the establishment of foreign subsidiaries in developing
countries, the relocation of production within GPNs is increasingly taking place through
subcontracting in particular to highly capable contract manufacturers (Gereffi 2004).
Subcontracting and outsourcing not only allows brand firms to focus on their core
competencies but provides flexibility in shifting production locations quickly to meet
65
changing cost requirements and to quickly reduce or increase production without the cost
associated with sudden changes in equipment and machinery needs (Berger et al. 1999;
Kaplinsky 2005; Sturgeon 2002).
The first countries to receive relocated electronics hardware manufacturing factories
from developed country firms were Taiwan, Singapore, Malaysia and Thailand in the 1970s
and early 1980s (Chalmers 1991; Center for Research on Multinational Corporations 2005).
These countries were followed by the Philippines, Indonesia, China, and more recently India
and countries in East Europe such as Hungary, Poland, the Czech Republic and Romania
(Lüthje 2002; Center for Research on Multinational Corporations 2005). The signing of the
North American Free Trade Agreement also led to large manufacturing facilities in Mexico
in the 1990s (O’Brien 2001). It is still the case that the majority of subcontracted and
outsourced electronics manufacturing is done in Asia mainly for its low costs, an established
supply base, and proximity to key final markets (van Liemt 2007). Today, China is the
fastest growing electronics production country in the world and undertakes 80% of basic
component production and a large portion of final assembly for the electronics industry. It is
also the world’s largest computer hardware producing country (Dedrick and Kraemer 2006;
Marsh 2011).
Much of the goods produced by the electronics industry are characterised by a
modular product architecture where different elements of an electronic system and
components for a product are “designed to interact with one another through standardised
and codified interfaces” that have benefited from advances in information technology such
as computer-aided design technologies (Sturgeon 2002; Van Assche 2008: 355). As a result,
components for a product can be easily substituted without having to redesign the entire
product and its interface (Gereffi et al. 2005). The personal computer is considered to be an
example of the “ultimate modular product” (Curry and Kenney 2004: 114). The major
66
components of a personal computer are modules mounted on a printed circuit board. The
majority of its interface is standardised and non-proprietary. Because its production
processes are standardised, automated and codified and its assembly is basic and routine, the
manufacturing of a personal computer can be outsourced and done anywhere (Curry and
Kenney 2004).
‘Product modularity’ has allowed also for ‘modularity’ in the structure of the
industry GPN. According to Sturgeon and Kawakami (2010: 10), the “formalisation of
information and knowledge at the inter-firm link and relative independence of the
participating firms that gives value chain modularity its essential character”. Lead firms and
suppliers in the electronics/personal computer industry can easily communicate complex
technological and production information through codes and standards thereby creating a
suitable climate for outsourcing and the formation of vast GPNs (Sturgeon and Kawakami
2010).
Indeed, the electronics industry has the most extensive and dispersed global sourcing
than any other sector (Sturgeon and Kawakami 2010). There are generally three main
groups of firms involved in its personal computer sector. They are brand firms, contract
manufacturers and component suppliers. Brand firms are those that lead or organise and
govern GPNs. They determine how production is organised, which suppliers are able to
participate and under what conditions, such as price, quality, and delivery requirements.
Brand firms subcontract and outsource a considerable amount of their manufacturing
activities and use a range of suppliers for parts and components. This is especially the case
for American brand firms, which in 2003 outsourced 30% of their electronics manufacturing
(compared to less than 4% in Japan) (Shameen 2003).
The largest electronics brand firm and producer of personal computers is Hewlett
Packard (HP). It was ranked 11th on the Fortune 500 and 28th on the Global 500 listings for
67
2011. It recorded 8.76 billion USD in profits and 126 billion USD in revenues that same
year. In 2008, HP had around 600 suppliers in over 1,200 manufacturing locations. Its
supply chain that year had more than 340,000 workers worldwide (HP Global Citizenship
Report 2009).
Since the 1990s, HP and other brand firms have relied heavily on contract
manufacturing. This was originally used for the production of printed circuit boards and
final product assembly. Indeed, many contract manufacturers began as printed circuit board
assemblers and are considered leaders in advanced assembly equipment in the industry
(Lüthje 2002). Brand firms sold large parts of their manufacturing facilities to contract
manufacturers. Recently close to 75% of outsourced production by brand firms is contracted
to large contract manufacturers (Holdcroft 2009). Contract manufacturers are highly capable
suppliers that undertake manufacturing, assembly and testing of parts and final products for
branded and non-branded firms (Gereffi 2004). Since their rise in the 1980s, contract
manufacturers have grown into very large global firms in their own right as a result of
increasing demands from branded customers. They have achieved large economies of scale
by focusing on manufacturing while foregoing research and development and marketing
activities (Sturgeon 2002). In recent years, contract manufacturers have begun providing
services such as supply chain management, design engineering, logistics and inventory
management, repair, after-sales services, and assistance with compliance of environmental
legislation requirements (Gereffi et al. 2005; ILO 2007; Sturgeon and Kawakami 2010; van
Liemt 2007). With these additional services they have also been referred to as Electronic
Manufacturing Service (EMS) providers (these firms will be referred to as ‘contract
manufacturers’ throughout the thesis). Contract manufacturers purchase and outsource parts
and components from very large supply bases and manage their own GPNs. Today contract
68
manufacturers are the largest purchaser of electronics components on the world market
(Sturgeon and Kawakami 2010).
The top five contract manufacturers are Foxconn, Flextronics, Jabil Circuit, Celestica
and Sanmina-SCI. Foxconn (or Hon Hai) was ranked 60th in the Global 500 listing for 2011
and recorded revenues at 95.2 billion USD and profits of 2.45 billion USD. Flextronics was
ranked 334th in the Global 500 listing for 2011 and recorded 28.68 billion USD in revenues
and 596 million USD in profits. All of these firms, except for the Taiwanese Foxconn, are
based in North America (though Flextronics has its headquarters in Singapore, it originated
from and has offices based in California). All of these firms have extensive offshore
locations and ‘industrial parks’ in developing countries. Their ‘global footprint’ is also a
result of demands from branded customers to be in close proximity to other key suppliers
located in different regions of the world (Sturgeon 2002).
The final group of firms in the electronics industry are component suppliers. They
range from large global firms that design and produce technologically advanced components
for final products to very small firms that only produce parts and components that yield very
low values. Among the former subset of firms are ‘platform leaders’ (Sturgeon and
Kawakami 2010). Platform leaders are firms whose technologies are used in the products of
other firms. Examples of platform leaders are Intel for hardware and Microsoft for software.
These firms hold considerable technological prowess, share in industry profits, and market
power. They maintain their dominance in their industry by guarding their proprietary
knowledge and technological designs with intellectual property rights. They can also control
what and where in the industry GPN open or non-proprietary standards for innovative
technology are allowed for use by others and which of these can be codified. Crucially,
platform leaders can raise entry barriers to potential competitors which is a key strategy for
69
appropriating value and profits in the GPN (Curry and Kenney 2004; Sturgeon and
Kawakami 2010).
The majority of component suppliers are not as profitable as platform leaders. These
other suppliers produce ‘key components’ such as hard disc drives and dynamic random-
access memory (DRAM) modules, ‘secondary components’ such as semiconductor chips
and printed circuit boards and ‘commodity components’ such as power supplies, keyboards,
and cables and connectors (Curry and Kenney 2004: 137). Component suppliers though
engaged in relatively low value added activities are needed by contract manufacturers,
platform leaders and brand firms for various parts and components that go into a final
product.
The global electronics industry today is highly competitive, innovative, fast changing
with short product cycles, and employs a just in time production model. The more
technologically dynamic and highly valued components, such as semiconductors and hard
disc drives, experience a 1% decrease in its value per week, according to Curry and Kenney
(2004). In order to stay competitive in such an industry, firms must be “mastering this pace
of change” where “excess inventory or transit time, delays of expensive components, or any
finished or semifinished product containing them, anywhere in the value[e] chain, results in
value[e] loss” (ibid: 114). Indeed, cost competition is fierce in the electronics industry. This
industry feature affects not only who can participate in its GPN but how and under what
conditions. As is shown throughout the thesis, this cost and price squeeze particularly on
suppliers affects their ability to undertake governance over health and safety conditions.
70
3. The printed circuit board industry
Printed circuit boards (PCBs) are essential components for electronics devices.
Components such as semiconductor chips and capacitors are secured on PCBs in order to
establish electrical connections between them (LaDou 2006). PCBs are support industries
for semiconductors, consumer electronics, computer and peripherals, communications and
data storage industries. Within the PCB industry, there are two main activities - PCB
manufacturing (PCBM) and PCB assembly (PCBA). Each type of activity is undertaken by
very different types of firms. PCBM, which is the actual production or fabrication of the
boards, is highly complex and requires investment in heavy equipment. It involves
laminating boards with conductive copper layers that are etched for circuit patterns. A solder
finish is added to the board to prevent oxidation of the copper. PCBA is the process where
electronic components are attached or soldered on to the board. This process is less
sophisticated and can be done using automated techniques or by hand. For example, PCBA
performed by a large contract manufacturer is done in large automated equipment that can
run for twenty four hours a day. Smaller suppliers may employ workers to do assembly
work by hand. PCBA is routine and low-skilled and is easily outsourced to low cost areas.
The PCB industry originated in the US and much of it was eventually outsourced to
contract manufacturers. Contract manufacturers have subsequently moved these operations
to the Asia region. In 2008, China made up 31.4% of the PCB market. The Asia region as a
whole produces 84% of PCBs (McCormack 2010). In the past Taiwanese firms such as
Acer, Mitac and Elitegroup were the key players in PCBM. More recently the largest PCBM
firm or PCB fabricator is Flextronics (in 2003) (DiDominico, 1996; Shameen 2003). In
Penang, PCBM MNCs include Seagate, Flextronics, Sanmina-SCI, Jabil Circuit, and Plexus
71
(Best et al 2003; Chandran 2008). According to a directory listing of electronics firms in
Penang, over a dozen firms were undertaking PCBA in 2008 (InvestPenang, 2008).
4. The electronics industry in Malaysia
A. Historical development: 1970s to 2000s
The electronics industry in Malaysia grew with the help of national industrialisation
policies. The Malaysian government decided to diversify its economy away from primary
commodity production and set out policies to develop the manufacturing sector in the late
1960s. Two key legislations to promote export oriented manufacturing were notable for
boosting the electronics industry in the country. They were the Investment Incentives Act of
1968 and the Free Trade Zones (FTZs) Act of 1971. In an attempt to lure foreign investors,
the Investment Incentives Act gave “pioneer status” to strategic industries or products in the
form of exemptions from company, development, payroll and other forms of taxes for a
period of five to eight years. It also provided investment tax credits, export incentives, tariff
protection and exemptions from import duties (Jomo 1993). The FTZs Act created industrial
zones that were exempt from trade regulations and customs duties and housed companies
that produced only for export (Rasiah 1993). The first Malaysian FTZs were established in
Penang in 1972. These initial FTZs brought about significant growth of electronics
production in Malaysia.
The greatest growth phase in the electronics industry in Malaysia occurred during
the 1970s and into the early 1980s. The first electronic firms to locate in Malaysia (in the
state of Penang) were American semiconductor companies. Employment in the industry rose
72
by 16%, averaging a 61% annual employment growth rate for the industry, between 1973
and 1985 (in comparison to around 8% for the entire manufacturing sector in Malaysia)
(Narayanan and Rasiah 1992; O’Connor 1993). By 1985, there were 14 US owned
semiconductor assembly plants in Malaysia overall employing a little more than 36,000
workers (Scott 1986).
Growth in the industry was concentrated in the semiconductor sector and by the
early 1980s Malaysia had become the largest semiconductor exporter in the world. The
semiconductor sector made up 72% of all electronics outputs in 1985. All the semiconductor
firms were foreign MNCs and few local supporting industries existed at the time. The sector
consisted mainly of labour intensive assembly work of semiconductor components that used
imported inputs and components for export (Chalmers 1991; O’Connor 1993; Rasiah 2006).
The first growth phase came to an end in the mid 1980s when a global downturn in the
electronics industry was coupled with a severe recession in the country. Thirty thousand
jobs in the industry were lost between 1984 and 1986 (Henderson 2011; Narayanan and
Rasiah 1992).
A second growth phase in the electronics industry occurred from the late 1980s into
the mid 1990s. This coincided with the first Industrial Master Plan for the period 1986 to
1995 which called for upgrading technological capabilities and skills, creating linkages
between MNCs and Malaysian suppliers and diversifying the industry into labour intensive
consumer electronics (Henderson 2011). The government hoped this would create demand
for a local support industry for components assembly. With rising demand in Western
markets a second wave of foreign investments occurred during this period from large
consumer electronics companies from Japan and South Korea (such as Hitachi, Sony,
Toshiba and Samsung), and Taiwanese firms (mainly contract manufacturers) supplying for
the computer industry. A local supporting component industry did develop to assemble key
73
and commodity components such as printed circuit boards, speakers, monitors and
keyboards and undertake plastic moulding and packaging (Ernst 2003; Henderson and
Phillips 2007; Narayanan and Rasiah 1992; O’Connor 1993; Rasiah 2006). Consumer
electronics products rose from 24% of total electronics exports in 1980 to 37% in 1987 and
56% by 1990. Consumer electronics products also became the largest foreign exchange
earner for Malaysia in 1990 (Narayanan and Rasiah 1992).
Semiconductor firms in the country expanded their production facilities during this
phase and in 1990 Malaysia was still the largest exporter of semiconductor devices
(Narayanan and Rasiah 1992). It was during this period that the hard disc drive industry
relocated parts of its manufacturing operations to Penang to support Singapore, where the
industry was globally clustered (Ernst 2003). Singapore engaged in a policy to shift its low
waged jobs in assembly operation such as for hard disc drives to other countries like
neighbouring Malaysia in order to move its industry up the value chain (O’Connor 1993;
Rasiah 2006). This resulted in the hard disc drive industry in Penang increasing its number
of workers from 2,600 to 32,000 between 1990 and 1996 and employing 27% of all
electronics workers in the state by 1996 (Henderson and Phillips 2007).
The rising demand for consumer electronics components led to a shortage of labour
in Malaysia by 1990 (Narayanan and Rasiah 1992). In response, the Malaysian government
instituted a policy that allowed the inflow of cheap and low-skilled foreign labour from
neighbouring countries. From 1990 to 1996, the foreign labour rose from 1,024 to 46,470
(Henderson and Phillips 2007). In 1996 and again in 2000, foreign workers made up around
10% of semi and unskilled workers in the country’s overall manufacturing sector (ibid).
The second growth phase ended in the late 1990s with increasing competition from
lower cost countries such as China and Vietnam. By the late 1990s the short-lived hard disc
74
drive and computer assembly sectors had relocated to China and Thailand (Rasiah 2005).
This was compounded with the Asian financial crisis in 1997 to 1998 and the slowing down
of the American and European economies in 2001. After the Asian financial crisis, the
Malaysian government increased incentives for foreign investors by removing trade related
restrictions (Henderson 2011). In 1996, the Malaysian government passed the second
Industrial Master Plan (IMP2) for the period 1996 to 2005. The heavy dependence on
imported parts and components was made evident in the 1990s when its total value reached
half the value of total electronic exports (Chandran 2008). IMP2 sought to move the
industry to higher value added activities, such as research and development. IMP2 also
aimed for Malaysia to be an attractive location for regional headquarters of MNCs.
In 2000, the electronics industry was worth 50 billion USD in exports and employed
over 300,000 workers in Malaysia. However, since the early 2000s, there has been growing
concern over the ability of suppliers to MNCs to move up the value chain. Most Malaysian
electronic firms have been SMEs and a large number of local suppliers are foreign owned
(Best et al 2003). Local suppliers continued to be engaged in low value added activities such
as assembly, testing and packaging using imported parts and components and had very little
proprietary advantages (Ernst 2003; Chandran 2008). A few Malaysian companies have
managed to become global firms, such as Bakti Comintel Manufacturing, P. K. Electronics,
Globetronics, Trans Capital Holdings, UNICO and Eng Teknologi (Best et al. 2003;
Henderson and Phillips 2007). However, during an interview with an official at the Penang
Development Corporation, these firms were considered the exceptions. It was said that
Malaysian SMEs in general had not moved up the value chain despite various government
programmes and support for training and skills development. The official felt that SMEs did
not take advantage of these programmes (PDC official, personal interview, 2008).
75
B. The state of the Malaysian electronics industry in recent years
Since 2000, the electronics industry in Malaysia has entered a third phase where it
continues to be the main manufacturing sector in Malaysia (see Table 3.1). While there has
been a decline in recent years due to the global economic downturn, the industry still made
up 55% of total manufactured exports in 2009. The integrated circuits and electronic
components exports alone amounted to 16.8% of the total manufactured exports in 2009
(see Table 3.1). Electronic components received the highest amounts of investments in 2008
and 2009 and the semiconductor devices sector continued to dominate representing 91.5%
of total exports of electronic components in 2008 (MIDA 2008; MIDA 2009).
Table 3.1. Top ten exporters of integrated circuits and electronic components by share in economy’s
total merchandise exports (Million dollars and percentage)
1990 2000 2007 2008 2009
2000
(%)
2009 (%) (or
nearest year)
World ... 308372 412367 418751 353597 4.9 2.9
Philippines b, c 1053 16663 17673 15573 11067 41.9 28.8
Singapore 3675 34436 70320 72557 61818 25.0 22.9
Taipei, Chinese 2435 21767 47415 47546 43629 14.7 21.4
Malaysia b, c 4321 18729 28091 27060 26457 19.1 16.8
Hong Kong, China 2562 14046 46969 50579 51892 6.9 15.8
Costa Rica b ... 51 1342 1072 871 0.9 9.9
Korea, Republic of 5364 24688 32743 28189 26995 14.3 7.4
Israel 143 1782 976 1525 3391 5.7 7.1
Japan 13391 42454 44526 44515 36563 8.9 6.3
Thailand 901 5877 9238 8210 7383 8.5 4.8 b includes significant exports from processing zones c includes Secretariat estimates Source: World Trade Organisation, International Trade Statistics 2010.
The industry has not transitioned out of its domination of assembly operations for
large MNCs that are low cost and labour-intensive (Henderson 2011). There has also been a
persistent lack of technology spill-over from foreign to local firms (Doner and Ritchie
2003). As a result, the industry faces strong competition with lower cost countries such as
China, Vietnam, and India (Best et al. 2003).
76
The factors contributing to the third phase, which is one characterised by a
stagnating industry, are complex. Henderson (2011) argues that the combination of foreign
led industrialisation and the “crowding out” of highly capable Malaysian Chinese industrial
capital (a result of racialised politics tied to an affirmative action policy in favour of the
majority ethnic Malays in place since 1971) has led to negative consequences for
industrialisation and the difficulty of maintaining global competitiveness for the country.
This is also compounded by the lack of federal government incentives for local
entrepreneurship in the manufacturing sector. Much of the success of the electronics
industry in Malaysia is due to efforts of state governments, in particular Penang (see
discussion below). Federal industrial policies have focused more on heavy industries such as
steel, petro-chemicals and automobiles which were more lucrative for ethnic Malays.
Further, the inflow of and increasing dependence on low cost and low skilled foreign labour
has kept the industry in low value, low-skilled and labour intensive portions of the GPN. As
a result, competition with low cost countries like China presents a considerable challenge to
Malaysia’s current participation in the global electronics industry (Henderson and Phillips
2007). Thus the characterisation made by Best (1999) of Malaysia being “strong in
manufacturing, weak in innovation”, remained relevant in recent years (quoted in Lüthje
2002: 240). Figure 3.1 provides a summary of the three key phases in the development of
the electronics industry in Malaysia.
5. The electronics industry in Penang
After independence and throughout the 1960s, the state of Penang faced a deep
recession and high unemployment (around 16%). This was mainly due to the loss of its main
source of economic growth – its entrepot -- to another location in Malaysia in 1967 (Beng
2010). Looking for ways to revitalise the economy, the Penang state government
commissioned an American consulting firm, Robert Nathan and Associates, to assess the
economic situation of Penang and develop a proposal for its industrial deve
Penang Master Plan of 1970, also referred to as the Nathan Report, recommended
the establishment of FTZs that would be attractive to subsidiaries of foreign firms (Wangel
2001). In order to carry out the recommendations of the Nathan Report,
Development Corporation (PDC) was created in 1969 to develop FTZs. The then Penang
Chief Minister, Dr. Lim Chong Eu, and the PDC also conducted overseas trade missions to
the United States to attract foreign direct investment from electronics fi
to Penang (Goh 2011).
Figure 3.1 Key phases of the electronics industry in Malaysia
• national industrialisation policies shifted to export orientation
• strongest growth in electronics industry
• dominated by foreign (American) semiconductor industry
• growth phase ended with mid 1980s recession
Phase 1:
1970 - 1985
77
2010). Looking for ways to revitalise the economy, the Penang state government
commissioned an American consulting firm, Robert Nathan and Associates, to assess the
economic situation of Penang and develop a proposal for its industrial deve
Penang Master Plan of 1970, also referred to as the Nathan Report, recommended
the establishment of FTZs that would be attractive to subsidiaries of foreign firms (Wangel
2001). In order to carry out the recommendations of the Nathan Report, the Penang
Development Corporation (PDC) was created in 1969 to develop FTZs. The then Penang
Chief Minister, Dr. Lim Chong Eu, and the PDC also conducted overseas trade missions to
the United States to attract foreign direct investment from electronics firms in Silicon Valley
Figure 3.1 Key phases of the electronics industry in Malaysia
• 2nd wave of foreign investment (Japanese, Taiwanese & Korean firms)
• increase in consumer electronics and hard disc drives
• labour shortage; rise of foreign labour
• grwoth phase ended with competition from low cost countries & Asian financial crisis
Phase 2:
1985 - 1996
Phase 3:
2000
2010). Looking for ways to revitalise the economy, the Penang state government
commissioned an American consulting firm, Robert Nathan and Associates, to assess the
economic situation of Penang and develop a proposal for its industrial development. The
Penang Master Plan of 1970, also referred to as the Nathan Report, recommended
the establishment of FTZs that would be attractive to subsidiaries of foreign firms (Wangel
the Penang
Development Corporation (PDC) was created in 1969 to develop FTZs. The then Penang
Chief Minister, Dr. Lim Chong Eu, and the PDC also conducted overseas trade missions to
rms in Silicon Valley
• Industry trapped in labour intensive, low skilled, low value added activities
• local SMEs not moving up the value chain
• factories relocating to China & other low cost neighbouring countries
Phase 3:
2000 -
78
After paddy fields were replaced with the first FTZ in the country, National
Semiconductor was the first electronics firm to establish a presence in 1972 (Beng 2010). It
was followed by AMD, Hewlett Packard, Intel, Litronix (now taken over by Siemens),
Bosch and Clarion (Wangel 2001). This pioneering group of firms are referred to as the
“Seven Samurais” and their presence is attributed to the take off of the electronics industry
in the state (PDC official interview, 2008). Many more foreign investors followed and by
1980 there was a total of 4 FTZs in the state with 25 electronic assembly factories
(Hutchinson 2008). In recent years, Penang had the largest number of electronics firms and
highest production levels in the country. In 2008 there were 190 electronics firms in Penang
(data obtained from a Penang government agency, 2008).
Penang today is one of three major electronics clusters in the country. The other two
are in Klang Valley and Johor. Among these clusters, the majority of the growth of the
electronics industry in the country took place in Penang (Henderson and Phillips 2007). The
Penang electronics industry continues to be stronger than in other parts of the country and is
a key industry in the state economy. It also continues to be the top location for foreign
investment in the country. In 2009, for example, close to 20% of total investments in the
sector in Malaysia was located in Penang (Chan and Ong 2010). Penang is known for its
“world class capability” for assembly and testing of semiconductors, computer components,
and computers. It has a local supply base consisting of second and third tier suppliers of
components. There is also more local outsourcing by MNCs than in the other clusters (Best
et al. 2003; Rasiah 2005).
Henderson and Phillips (2007: 86) attributed the few successes in Penang to a state
where “a political and institutional infrastructure has emerged that has a coherent industrial
focus, combined with high levels of administrative expertise, encouraged by state politicians
79
oriented towards industrial development. At the core of this infrastructure is the Penang
Development Corporation (PDC)”. The PDC had become a centre of research and expertise
on the electronics industry. It also coordinated relationships between MNCs and local firms.
For example, the PDC worked to establish subcontracting relationships between foreign
semiconductor firms and local machine tool firms, which was successful in creating several
clusters for the semiconductors and disc drive sectors. It also coordinated relationships
between industry and the federal government. No other institution in Malaysia had a similar
level of expertise and engagement (Doner and Ritchie 2003; Henderson 2011; Henderson
and Phillips 2007).4
Table 3.2. Number of electronic firms in FTZs in Penang
YEAR NUMBER OF FIRMS
1990 91
1992 129
1996 148
2000 150
2001 164
2002 164
2005 188
Source: Hutchinson (2008)
According to a PDC official, there are signs that some activity in the industry in
Penang was moving up the value chain and the state was no longer a low cost manufacturing
location. The official noted the expansion of high value companies, for example new
investments by Motorola worth up to 1.22 billion US dollars; new investments worth around
4 The PDC, however, in recent years has lost a considerable amount of its leverage after the creation of InvestPenang, a non-profit government agency responsible for promoting investment in Penang (PDC officials, interview 2008).
80
30 million US dollars by Honeywell International for an avionics plant; and a new PCB
plant by Ibiden worth 1 billion ringgit (around 281 million USD). However it was not clear
whether these new investments would create higher skilled jobs (Shari 2008; Selyukh and
Baldwin 2011; PDC interview; Kam 2008). Also according to the PDC official, new
domestic firms were diversifying and entering other sectors, such as foundries, light
emitting diodes, recycling centres for electronic waste and metals and food processing (see
Table 3.3).
However, while there continues to be new investments in Penang, local SMEs
continue to be a supporting industry to MNCs and are not necessarily moving up the value
chain to become original equipment manufacturers, original design manufacturers or
original brand manufacturers. Most of the largest investors in the state are American and
European (Henderson 2011). Large operations by MNCs include Seagate, Agilent, Intel,
AMD, HP, Dell, Western Digital, BenQ, Inventec and some of the largest contract
manufacturers like Flextronics, Cincaria, Sanmina-SCI and Jabil Circuit. In 2010, the largest
investors in Penang were Western Digital Corporation and Jabil Circuit (AMCHAM 2011).
Even though the presence of contract manufacturers is strong in Penang, these global firms
normally source their parts and components on behalf of their customers from suppliers that
may be located in other countries and utilise local suppliers mainly for non-electronics parts
(Lüthje 2002).
There are many government incentives in place for SMEs to transition and upgrade
into higher value segments of the industry. They include the Human Resources
Development Fund and the Small and Medium Enterprise Development Corporation to help
small local firms with development grants, and the creation of the National SME
Development Council that provides a conglomeration of funds to SMEs from 23 different
Ministries and Agencies. However, SMEs are said not to be aware of the incentives and are
81
seen as not taking advantage of them (Doner and Ritchie 2003). A PDC official pointed to
an “attitude problem” among SME managers that prevented them from successfully
profiting from government schemes. The official also felt there was complacency among
Malaysians in their jobs that prevented them from becoming entrepreneurs. The official
pointed to findings from a comparative study between the Taiwanese and Malaysian models
of industrial development to explain the problems faced by Malaysian SMEs. According to
the report, the Taiwanese government developed its local industries first before allowing
large foreign investors to enter. Malaysia, however, engaged in industrial development the
other way around by bringing in large foreign investors first and then developing local
supporting firms. This, according to the PDC official, has led to SME dependency on
MNCs. Also in contrast to Malaysians, the Taiwanese worked and acquired knowledge from
firms in the US and returned home to set up their own firms. Malaysians that work for
MNCs rarely leave their jobs and often stay until retirement – a sign of complacency for the
PDC official (PDC officials, personal interview, 2008).
An interview with the Deputy Chief Minister of Penang in 2008 suggests the state
government had to a certain degree given up on the electronics industry and it has become a
“thing of the past”. The new focus for future drivers of the economy is in areas of services,
education, and medical and ecological tourism5. The Minister clarified that while there is
not necessarily a “dismantling of the electronic industry, but it is not dynamic. The industry
was well established in the 1970s, which is still going strong. But there is a need for high
end paying jobs. For the next ten to twenty years the question will be on what will happen to
the FTZs [which host the majority of electronics firms in Penang]” implying there may be a
shift away from the electronics industry as the main economic driver of the state of Penang
(Deputy Chief Minister of Penang (paraphrased), personal interview 2008). 5 In 2008, the Chief Minister of Penang announced plans to build a medical hub where foreign and local hospitals would be located (Filmer 2008).
82
Table 3.3. Average job creation from investment projects in Penang in 2009
> 100 million
ringgit (or around 29
million USD)
50 million –
100 million ringgit (or
around 15 to 29 million
USD
10 million –
50 million ringgit (or
around 3 to 15 million
USD)
< 10 million
ringgit (or around 3
million USD)
Medical devices 339
Light emitting diodes 238
Integrated circuits 155 70 50
Biopharmaceuticals 131
Food and beverages 185 82
Paper products 135 46
Machine parts 108 88 27
Electrica
l products
282 43
Equipment parts 74 30
Ball pens 35
Security systems 34
Furniture/fixtures 32 48
Polymers/plastics 13 30
Cable parts 28
Electronic toys 161
Jewelry 143
Industrial waste management 13
Footwear 77
Printed circuit boards 74
Lenses/optics 41
Chemical products 18 Source: Chan and Ong (2010)
6. Conclusion
This chapter covered a breadth of information that provides the context for the case
study. It highlighted the globally fragmented nature of the electronics (and personal
computer) industry and the different types of firms that constitute its GPN. A significant
portion of the chapter was focused on the electronics industry in Malaysia and the state of
Penang. This is in order to give the reader a background to the location where the majority
of the fieldwork was conducted. The discussion of the historical development and current
state of the industry in the country will inform later chapters, namely Chapters 6 and 7, on
the governance experiences of first and second tier suppliers in Penang. Later discussions
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will highlight how the struggles of firms particularly SMEs to stay competitive in the
‘stagnating electronics industry’ in Penang become sources of the struggles they face with
implementing governance measures over health and safety.
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CHAPTER 4
RESEARCH METHODOLOGY
1. Introduction
This chapter reports on the qualitative research methods used in this GPN case study.
My research methodology reflects advice and guidance from ‘A Handbook for Value Chain
Research’ by Raphael Kaplinsky and Mike Morris on researching governance of value
chains. The methodology outlined in the Handbook corresponds to a GPN analytical
framework whereby firm and non-firm actors undertake the different functions of making
the rules, implementing or monitoring the rules, and enforcing the rules and must be
considered as equally important actors. When it comes to rule-making, for example, key
parties in the value chain, such as lead firms, can require suppliers to comply with certain
standards or codes. Some standards and codes, like the EICC, must be subsequently
enforced further down the chain to lower tier suppliers. Key first tier suppliers are assumed
to be able to assist their own second tier suppliers to meet requirements set by lead firms or
‘chain governors’ at the top of a GPN. The enforcement of different types of rules can be
done by firms through audits and self-reporting, by CSOs and labour unions through
campaigns and boycotts, as well as by government agencies that ensure compliance to
legislation. Thus, these three sets of actors - firms, CSOs and labour unions, and government
agencies – were the key respondents used for gathering primary data in the field.
The Handbook however was limited in its applicability when it came to researching
health and safety governance. These include identification of the type of respondent to
interview at the supplier firms and the lack of a method of analysis provided. These will be
discussed more in the sections below.
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The research was carried out in three phases. The first phase was the identification of
the case study, which was done through a literature review and desk based research. The
second phase was the gathering of primary data during fieldwork. The third phase involved
the gathering of secondary data to support and expand on the primary data and strengthen
the overall robustness of the research findings. Section two discusses each of these phases in
more detail. Section discusses the methods of analysis and triangulation of data. Section
four reports on the challenges faced in my research and some of the key limitations of the
data collected. It also discusses possible concerns regarding the consented identification of a
brand name firm interviewed and the handling of it in this thesis. Section four concludes this
chapter.
2. Research phases
A. First phase: selecting the case study
My interest in this PhD research was to understand how outsourced or relocated
manufacturing activities to developing countries that involve environmental health risks to
workers are governed throughout the GPN and in particular how governance measures reach
lower tier suppliers. The electronics industry and more specifically the production of
personal computers was chosen because of its use of significant amounts of hazardous
chemicals. It was also one of the first industries to engage in relocating its production
activities to developing countries and which continues to have vast GPNs today.
The next step was to choose a lead firm and its particular GPN. Hewlett Packard
(HP) was chosen because it was the largest electronics firm and producer of personal
computers. HP was also chosen because it manages one of the largest global supply chains
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in the industry. It also had in place one of the longest established supplier governance
programmes in the industry and was considered a leader in corporate social responsibility.
All of these features made the firm an interesting subject for the study of GPN governance.
This initial phase of research also involved two stages of a mapping exercise. First,
data was gathered on the environmental health impacts of the different manufacturing
activities of a personal (desktop) computer. This was done to identify which of the various
manufacturing activities that have been outsourced to developing countries posed significant
health risks to workers. The second part of the mapping exercise was identifying the key
locations of these different outsourced manufacturing operations undertaken by HP
suppliers. From these two sets of data, printed circuit board manufacturing and assembly
(PCBM and PCBA) was identified as a particularly hazardous production process and
Penang, Malaysia as a key developing country location where a substantial amount of
subcontracted electronics manufacturing took place. In Penang, suppliers were engaged in
both PCBM and PCBA. Penang, Malaysia was also one of the first locations in the world
used for off-shoring electronics factories by foreign firms. Malaysia was also personally an
interesting choice because I had been born there. Though I had migrated to the United States
as a child, I still had family in the country which I felt could help me ease some of the
difficulties of conducting fieldwork in a foreign country.
B. Second phase: fieldwork
Before heading out for fieldwork, I had a telephone conversation with Dr. Jason
Dedrick from the University of California-Irvine Centre for Research on Information
Technology and Organisations on the challenges of and tips for conducting firm level
research and interviewing in the personal computer industry. Dr. Dedrick had conducted
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extensive research on the personal computer industry and was able to impart some advice to
me as an early researcher.
The second phase of research was the collection of primary data in Malaysia and
other locations. Primary data was collected using semi-structured and in-depth interviews
either in person or by telephone with thirty six respondents in 2008 and 2010.6 Interview
respondents fall into three groups of organisations. They are firms, non-firms/non-
governmental organisations, and Malaysian government agencies. My trips to Malaysia
were between 24 March 2008 to 20 April 2008 and 4 August 2008 to 12 September 2008.
Several in-person interviews were also conducted in different locations in Western Europe
in June and July 2008. I also conducted interviews by telephone before, in between, and
after my trips to Malaysia in 2008 and 2010. Most in-person interviews were recorded and
notes taken. The majority of them were conducted in the respondents' sites of employment.
Telephone interviews were not recorded but involved furious note-taking during the
conversations.
i. Firms interviewed
The Handbook recommended gathering data from purchasing and sales functions of
firms on labour governance, I found it more useful to go directly to safety and health
officers and corporate social responsibility managers of firms for data on health and safety
governance. All firm interviews were conducted in-person in Penang, Malaysia and in
Western Europe. They included a senior manager from HP and a Corporate Responsibility
Director at one of HP’s first tier supplier’s headquarter, CSHQ – both of whom were
interviewed in Western Europe; health and safety managers at five first tier supplier sites in
6 There was a one year pause in my PhD research from November 2008 to November 2009 for maternity leave.
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Penang that were suppliers to HP; and various persons that included managers, a Strategic
Development Director and a safety and health officer consultant at six second tier suppliers
in Penang, some of which were suppliers to HP’s first tier suppliers. The average length of
recorded firm interviews (one interview was not recorded) was one hour and 25 minutes.
The interview with HP was conducted with the Global Manager for Supply Chain
Social and Environmental Responsibility in June 2008. This very fortunate interview was
arranged with the help of Dr. Khalid Nadvi, who met the respondent at a conference and
inquired about her interest in being interviewed for this research. An interview was arranged
during the manager’s visit to Lausanne, Switzerland. This interview lasted for two hours and
47 minutes. During email liaisons with the manager’s personal assistant a document
prepared for the R. Gene Richter Award that described the firm’s supply chain governance
merits was also shared with me.
All first tier suppliers interviewed were included in a list of top HP suppliers
released by the brand firm in 20087. Interviews with one of these first tier suppliers, CSHQ,
was conducted with the Corporate Responsibility Director at the suppliers’ headquarter
office located in Western Europe. This interview was organised after receiving contact
details from the HP manager. All other first tier supplier interviews were conducted at
manufacturing sites in Penang, Malaysia. Firms in Penang were located through an online
directory of electronics firms hosted by www.InvestPenang.gov.my. The directory provided
contact information and a short description of the main activities of firms such as PCBM
and PCBA. In total twenty eight firms both multinational and local that were either
undertaking PCBM or PCBA were contacted by fax, email or telephone for interviews.
7 The list can be accessed at http://www.hp.com/hpinfo/globalcitizenship/environment/supplychain/supplier_list.pdf. It should be noted that despite HP disclosing its largest first tier suppliers, assembling information on where they are located, what production activities they are engaged in and who their suppliers are was a cumbersome task.
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Several persons contacted were no longer employed by the firm and several contact persons
were directors or CEOs of the company which made reaching them difficult. Some
companies listed as undertaking PCB manufacturing or assembly informed me they were no
longer undertaking that line of work. A couple of smaller firms declined interviews stating
they were not required to comply with occupational safety and health laws or standards. In
the end, nine firms could not be reached successfully and six requests were declined.
Cold-calling firms and requesting to speak directly with their Environmental, Health
and Safety officer proved to be more successful than the other strategies.8 An additional first
tier supplier interview was organised from a referral from a respondent from another first
tier supplier. Those that accepted interviews included five first tier suppliers to HP (referred
to as CS1, CS2, CS3, and CS4), which included a contract manufacturer (referred to as
CM), and seven second tier suppliers (referred to as Supplier 1, Supplier 2, Supplier 3,
Supplier 4, Supplier 5, Supplier 6, and Supplier 7) engaged in either PCBM or PCBA for the
electronics industry. Those interviewed at first tier supplier sites in Penang included an
Executive Director and officers at the managerial level responsible for environment, health
and safety.
Firms that agreed to interviews were sent a letter, on University of Manchester
letterhead, with a brief summary of my research interests, contact information in Malaysia
and a prior informed consent form.
Most of the second tier suppliers interviewed were supplying to first tier suppliers to
HP. Two firms in this group had stated they no longer assembled PCBs for the computer
industry. They were Supplier 4 and Supplier 5. However, since these suppliers had been
8 It should be noted that while the Handbook for Value Chain Research recommended interviews with CEOs, sales and purchasing functions in firms as key respondents, I found that going directly to safety and health managers, where they existed, more fruitful in obtaining data on health and safety standards compliance. Therefore, this thesis makes an important contribution to global value chain research by extending the analysis to include health and safety governance. This contributes to a deepening and broadening of the value chain analytical approach.
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engaged in the computer industry in the past, continued to undertake PCBA for other
industries, and had relevant knowledge and information about the industry and its
environmental and OHS governance processes their interviews were included in the data
analyses. See Annex 1 for a diagram connecting the firms interviewed as customers and
suppliers in the GPN.
ii. Civil society organisations, labour unions and other non-firm actors
interviewed
CSOs and labour unions were identified by media reports on campaigns and through
snowballing, i.e. asking firm respondents from earlier interviews to identify other important
and active non-firm actors in the sector. Interviews with fourteen civil society organisation
(CSO) and trade union representative were conducted in 2008 and 2010. These comprised
actors in Western Europe, the United States and in Malaysia. All of the non-firm actors
outside of Malaysia interviewed were members of the GoodElectronics Network (GEN).
GEN is an international network of CSOs, trade unions, academics and individuals
concerned with human rights, labour rights and environmental impacts related to the
electronics industry. Those CSOs and trade unions interviewed were actively engaged in or
campaigning on the industry and/or its Electronic Industry Code of Conduct (EICC). They
included CSOs whose campaigns were a catalyst for the creation of the EICC. Several
respondents had established working relationships with HP and other EICC branded
corporate members. The majority of these interviews were conducted by telephone. In
person interviews were conducted with a representative of the International Metalworker’s
Federation (IMF) and the International Labour Organisation in Geneva, Switzerland in June
and July 2008 respectively. The remaining (telephone) interviews were conducted with two
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representatives from different CSOs with long standing campaigns on the electronics
industry in the United States, a United Kingdom development CSO, and a Netherlands
branch of a global environmental organisation. One of them is Ted Smith who is the founder
and former executive director of the Silicon Valley Toxics Coalition, co-founder of the
International Campaign for Responsible Technology and chair of the Electronics TakeBack
Coalition steering committee. A representative from the Brussels office of the IMF was also
interviewed. These respondents were all initially contacted by email with an explanation of
my research interests. They were also subsequently provided with a similar letter provided
to the firm respondents describing my research interests and a priori informed consent form.
The average length of the recorded in-person interviews (four interviews were conducted by
telephone and were not recorded) was one hour and 30 minutes.
Interviews with CSOs, trade union members and other non-firm actors in Malaysia
were all conducted in-person. They included representatives from two CSOs, one of which
was a member of the GEN and had been a labour activist on labour conditions in the
electronics industry (particularly of female workers) since the 1980s. Interviews were also
conducted with a representative from the Malaysian branch of IMF and a representative
from the Electrical Industry Workers Union (EIWU) in Penang both of which had worked
on organising electronic workers in Penang since the 1980s. Other informants in Penang,
Malaysia were an official from a Malaysian research institute on socio-economic and
environmental issues, an occupational health doctor who had worked as a consultant on
occupational health issues for several electronics firms, and a journalist. The occupational
health doctor was very engaged in activism work to improve the environmental health
conditions of industries in Malaysia. He worked closely with one of the Penang based CSO
and the EIWU representative interviewed. I learned of the doctor through my interviews
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with the Penang based CSO and journalist. It was also the doctor who subsequently
introduced me to the EIWU representative.
I met the occupational health doctor several times during my stays in Penang. During
one of my visits, the doctor allowed me to accompany him and a colleague to a meeting
with a health and safety manager at a client factory. It was to let me personally witness the
types of concerns firm management have over government regulation on health and safety
and how lax Malaysian laws were when it came to protecting workers. The doctor also
drove me inside and outside one of the free trade zones in Penang pointing out the waste
management systems of factories namely waste storage tanks on site and pipes that seemed
to lead to regular drains. I was also taken to visit the doctor’s nephew at his home who was a
manager at a plant of a foreign semiconductor firm in Penang. Though the firm is not a
supplier to HP we had a conversation about enforcement and compliance to private
standards and government regulation by foreign versus domestic firms.
The journalist interviewed was from a critical news magazine based in Penang that is
part of a reform movement in Malaysia. I had learned of this journalist as being the key
person to talk to after contacting Edmund Terence Gomez, who was an Associate Professor
of Political Economy at the University of Malaya before joining the United Nations
Research Institute for Development, about my research before heading to fieldwork. My
first interview in Malaysia was with the journalist who provided an introduction to the
politics in the country, the situation of the electronics industry in Penang, and environmental
concerns among Malaysians. The journalist also provided me with several contacts which
included the Penang CSO, occupational health doctor, and the person at the research
institute with whom interviews were conducted.
iii. Malaysian government agencies interviewed
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Officials from six Malaysian government agencies were interviewed in-person in
2008. This group of interviews, which were all recorded except for one, averaged one hour
and 46 minutes. Interviews were held with an official at the National Institute of
Occupational Safety and Health (NIOSH) in Penang and the Department of Occupational
Safety and Health (DOSH) in Penang. These interviews were conducted at a fairly early
stage of my fieldwork and helped establish an important governmental perspective on the
health and safety risks in the electronics industry.
Interviews were also conducted with two officials at the Penang Development
Corporation (PDC) and a third person who had worked at the government agency in the past
for many years and was knowledgeable about the electronics industry.9 All three informants
had historical knowledge of the role the PDC played in the development of the electronics
industry in Penang. The former employee in particular had worked closely with foreign and
local firms in the electronics industry and as a result was knowledgeable about how issues
such as the environment, health and safety were prioritised within the industry.
An interview with a representative from the Department of Standards, while
interesting in terms of understanding the role played by the government at the national level
in the international standard setting process, did not in the end deem very useful for my
research. I was hoping to learn more about how the health and safety specifications of the
Malaysian legislation on occupational safety and health came about and in particular in
relation to international standards. The respondent was not very knowledgeable on this
issue. I also learned from the interview that the actual work of creating and managing
9 I was also told by one of the interviewees at PDC that he was intrigued by the interview request after seeing I
was from Manchester. I was informed that Malaysians are fierce fans of Manchester United and that it was common for fans to stay up very late into the night to watch a game live on television. Though it cannot be verified, my loose association with the professional football team may have played a small but positive role in obtaining some interviews.
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technical committees and ensuring engagement by firms and CSOs in the international
standards setting process was outsourced to the Standards and Industrial Research Institute
of Malaysia (SIRIM). SIRIM, unfortunately, declined an interview.
During a lunch I was invited to by the EIWU trade representative and the Malaysian
representative of IMF, I met another trade union representative with close ties to the
recently elected Deputy Chief Minister of Penang. The Deputy Chief Minister was a
member of the party that was in opposition to the ruling party in the federal government. It
must be noted that all of the civil society and trade union persons I interacted with and
interviewed in Penang were ethnic Indians. Being myself of Indian descent and born in
Malaysia, I received kind gestures of assistance with furthering my research and interviews
from the many Malaysian Indians I met. One of these gestures was the unique opportunity to
attend a first of its kind meeting held by the Deputy Chief Minister of Penang on industrial
relations, which was convened with representatives from the private sector, trade unions,
and the press. I was also personally introduced to the Deputy Chief Minister after the
meeting and later held a short two-part interview with him. This was indeed a rare
opportunity and I was given frank responses about the state of affair of politics, regard for
the environment, and the state of the electronics industry in Penang. It was also in the
waiting room of the politician’s office where I met an ethnic Indian civil servant who gave
me the contact details of an occupational health doctor in the Ministry of Health in Penang.
I conducted an interview with the occupational health doctor from the Ministry of
Health in Penang to get the ‘government’ take on the situation of health and safety in the
electronics industry. The doctor had visited factories in the electronics industry, provided
training and assessed the health and safety situation in these establishments. His remarks
were optimistic and in stark contrast to those of the private occupational health doctor
interviewed.
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C. Third phase: gathering secondary data
Secondary data was collected from annual corporate social responsibility (CSR)
reports, websites and other documents from firms; documents from the EICC; Malaysian
government documents; articles from the press; and reports from various CSOs and the
IMF. Data from CSR reports, the EICC, and firm websites were used to analyse the
activities of firms with regards to their approach to environmental health governance, EICC
compliance and supplier governance. For HP, data was collected from all of its CSR reports
from the year 2001 to 2009. For CSHQ, secondary data was obtained from CSR reports
from years 2006 to 2008 and booklets pertaining to health and safety that were provided to
me during the interview. For CS1, CSR reports for years 2008 and 2009 were used. For CS2
the only CSR report (for 2008) and information on its website were examined. CS2 did not
issue subsequent annual reports after 2008 only updates on its CSR activities on its website.
For CM its first CSR report in 2009 and general information on its own and supplier
governance programmes obtained from the firm website in 2008 were used for additional
data collection. The interviewee from CM also shared a couple of electronic documents,
which were a PowerPoint presentation created by the respondent and used for worker
training on health and safety and chemical usage, and the government issued chemical
safety data sheet used by firms in Penang. CS3 and CS4 did not issue CSR reports. The
officer interviewed at CS3, however, provided me with his Master of Business
Administration thesis which was on health and safety management at the facility. The safety
and health consultant at one of the second tier suppliers, CS4, provided me with a copy of a
PowerPoint presentation describing the firm and his role and activities there.
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Several documents were also obtained from the government agency websites of
DOSH, NIOSH, SIRIM, Ministry of International Trade and Industry, and the Malaysian
Investment Development Authority. The official at DOSH Penang provided me with a
checklist used by inspectors for assessing compliance with the health and safety legislation
(the Occupational Safety and Health Act). The official at NIOSH provided me with a copy
of a PowerPoint presentation describing the functions of the agency. A copy of the
Malaysian Occupational Safety and Health Act was bought at the NIOSH office. The
Penang Skills Development Centre also shared with me a document describing its SME
Business Coaching Programme. Copies of several official Malaysian Industrial Master Plans
and historical Malaysian Trade Union Congress proceedings were obtained from the
International Labour Organisation library in Geneva, Switzerland in 2008.
3. Methods of analysis and triangulation
My method of analysis corresponds to a multi-scalar GPN framework -- that is to
understand the roles and interactions of the three key sets of respondents in the case study.
Broadly, the method of analysis undertaken consisted of a series of codification and
classification that was used to generate theory (Blaikie 2006). After transcribing the
recorded interviews, a summary of the key points, based on the interview questions, were
generated for all interviews conducted during my fieldwork. For each group of actor, these
key points were roughly organised into major themes. For firms they were:
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• Roles and responsibilities of the respondent
• Activities of the firm and its upstream and downstream links
• Private governance processes and experiences
• Engagement with public (government) regulatory processes and experiences
• Engagement with other organisations/persons over occupational health and
safety governance
• Drivers of governance
• Responsibility over governance in the GPN
• Potential challenges environmental, health, and safety concerns pose for the
firm
For CSOs and labour union representatives, given each organisation had unique interactions
with the electronics industry, interview questions were more tailored to specific
organisations and their backgrounds. The general themes that arose from these were:
• Roles and responsibilities of the respondent
• Campaign activities on and engagements with the electronics industry
• Thoughts on private governance over environmental, health, and safety in the
electronics industry
• Thoughts on public governance (regulation) over environmental, health, and
safety in the electronics industry
The different government agencies interviewed were also engaged with the electronics
industry in specific ways and interview questions were also somewhat tailored to their roles
and responsibilities. The general themes for this group of actors were:
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• Background, mandate, and activities of the government agency
• Roles and responsibilities of the respondent
• Engagement on occupational health and safety with other non-governmental
organisations and forums
• Learning within the agency
• Interactions with CSOs and labour unions
• Interactions with global institutions and processes
• Understanding/perception of occupational health and safety conditions and
governance in the electronics industry
• Interactions with foreign firms
• Interactions with domestic firms
• Interactions with small firms
• Enforcement processes and activities
• Awareness raising activities
• Critiques and supporters of the agency
From these broad themes, finer points or responses to more specific questions were
organised into sub-classifications.
It was important to always keep in mind the context of the interview responses and
respondents. The original interview transcriptions and the interview recordings were
referred to several times for laughter, pauses, and changes in inflection to gain a more
accurate interpretation of responses. Two more rounds of refinement were done to produce
even more specific classifications or categories. Analysis of these classifications was done
to decipher prevailing trends with each group of actor, their major themes, and finer points.
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The various trends were then cross analysed within each group of actor and across groups of
actors horizontally at the global and local scales and vertically and diagonally across scales
in the GPN (see Table 4.1).
Table 4.1. Group of actors interviewed at the global and local scale. Cross analysis of primary data (indicated
by arrows) was conducted horizontally between groups of actors within each scale, and vertically and
diagonally across scales in the GPN.
Firms
Civil society and
labour unions
(Inter) Government agencies
Global scale
Hewlett Packard
CSHQ
CSOs in the
GoodElectronics
Network
International
Metalworker’s
Federation
International Labour Organisation
Local scale
First tier suppliers:
CM, CS1 to CS4
Second tier suppliers:
S1 to S7
Malaysian CSOs
International trade
union representative
in Malaysia
Electrical Industry
Workers Union
representative in
Penang
Department of Occupational Safety
and Health
National Institute of Occupational
Safety and Health
Ministry of Health Penang
Penang Development Corporation
Deputy Chief Minister of Penang
Department of standards
Triangulation of data was conducted by interviewing a wide range of actors that had
different perspectives on the issues and questions researched. The actors also had varying
relationships and degrees of independence to each other. A couple of examples help
illustrate this. The private occupational health doctor, for example, had worked with many
electronics firms meet occupational health and safety standards. As a result, he was able to
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provide an independent view of the general occupational health and safety governance
practices in electronics factories in Penang, which corroborated with the findings from the
supplier interviews in Penang. Interview results with five members of the GoodElectronics
Network and a detailed report on a meeting between the Network and EICC members
provided different sources of information on CSO engagement with the electronics industry.
Different respondents provided comparative information on HP’s performance and activities
on supplier governance. They included particular the CR Director at CSHQ which had a
relationship with HP as a key first tier supplier and also as a fellow EICC board member,
and CSOs that had working relationships with the HP manager interviewed including a
person who was a member of the HP Stakeholder Advisory Council.
4. Reflections on the limitations and challenges with my research
The challenges faced in this research can be grouped into two categories: 1) limitations and
2) the ethical issues.
A. Limitations
The original proposal (outlined in my continuation report) for this PhD research was to
undertake a comparative study between HP and Dell. As I began my search for the
appropriate respondent(s) to interview in each of these firms I found a striking difference
between the two brands. HP had a larger number of persons responsible for environmental
and labour governance at the firm. Its CSR reports and press coverage of its environmental,
labour and OHS governance activities were vast in comparison to Dell. My initial contacts
with HP were interview requests via emails with the Environmental Director Asia Pacific
Stewardship Manager and the Manager of Corporate Social Responsibility, Asia Pacific and
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Japan located in Singapore. Both responded quickly and seemed to be helpful though they
did not turn into actual interviews – mainly due to scheduling conflicts. In the end, I
managed to have a very long interview with the Global Manager for Supply Chain Social
and Environmental Responsibility. Though the manager was based in California, she was
willing to accommodate me into her schedule during a European visit. Overall, the
interactions I had with HP were quite forthcoming and the information available for
researching the firm was plenty.
My interactions with Dell were quite the opposite from those with HP. At Dell, I
contacted the Director of Sustainability in the United States via email with a set of questions
for either a telephone interview or written responses. My request was declined due to a lack
of resources on their part. My interview request with the Dell factory in Penang, Malaysia
was also declined. Dell was also not as publicly transparent as HP. For example it did not
make public a list of its top suppliers as HP had done. There was also more press coverage
and articles featuring HP managers on CSR.
After holding several informative interviews with first and second tier firms linked
to HP’s supply chain (and the very informative and successful interview with the HP
manager), I found the search for another appropriate person to contact at Dell costly (in
terms of time) and futile in the end. I decided to forego a HP-Dell comparison and chose to
focus my research on a case study of HP and its GPN. This decision was further reinforced
as it became clearer, during my fieldwork that a great deal of data was being collected and
would have to eventually be analysed! A comparative study, though it would have its own
analytical merits, would not have allowed for a deep investigation of a particular GPN. In
the end, I am able to present a rich case study on governance in the HP led GPN.
Another major limitation faced in this research was the inability to clearly link all
second tier suppliers interviewed to first tier suppliers of HP or in other ways into the HP
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led GPN. Very early in my research, I spoke on the telephone with Dr. Jason Dedrick from
the University of California-Irvine on my research interests and his experiences on studying
the personal computer industry. Dr. Dedrick was quite interested in my topic having done
lots of research on the Dell computer global supply chain himself. After providing me with
valuable information on who the key players and geographical locations were for the major
components for personal computers and what are good entry points/strategies for obtaining
interviews – Dr. Dedrick gave me a key piece of advice on the difficulties of doing supply
chain research: that it is very difficult to reach the bottom tier firms of a supply chain and to
link them directly back to the supply chain lead firm. According to Dr. Dedrick, the parts
and components assembled at the bottom of the supply chain goes into “a pool” in which
different brand names dip into. Thus, when it comes to the bottom tiers, I should not try to
attempt to trace the journey of parts and components to verify whether they reach a
particular global brand firm – simply have faith that they do. Firms also do not normally
disclose their customers or suppliers. Thus connecting lower tier suppliers whose
components trickle their way up the GPN into HP computers is a challenging if not
impossible task. Indeed, in my interviews with second tier suppliers in Malaysia, it was very
difficult to find out who their customers were. The firms either would not divulge such
private information or simply did not know themselves.
Another limitation was the inability to secure interviews with more than one contract
manufacturer. As was discussed in Chapter 2, contract manufacturers are an important group
of suppliers to brand firms. They are also the group of firms that helped established the
EICC along with a set of global brand firms and therefore played a significant role in the
governance outcomes in the GPN. The only interview with a contract manufacturer based in
Penang – CM – was with an Environmental, Safety and Health Officer who did not have
much engagement with the EICC. An interview with the Corporate Responsibility Director
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of CSHQ (not a contract manufacturer) who was a board member of the EICC however did
provide a breadth of information on the EICC process and state of its affairs. In hindsight, it
would have been fruitful to interview more EICC CM members in their headquarter
locations to gain a better understanding of the dynamics of governance through an industry
wide code of conduct and the power dynamics with branded customers in implementing it.
In exchange for such interviews, however, I was able to find a very interesting podcasted
panel discussion on ‘Making Supply Chains Socially Responsible: Environmental
Sustainability in Electronics’ held at the Stanford Graduate School of Business Centre for
Social Innovation (on 3 April 2007), which included a representative from Solectron (a
major contract manufacturer) and HP (a different manager from the person I interviewed)
discussing the EICC. Findings from this discussion inform my analysis of the EICC in later
chapters. There has also been much reported in the media about the EICC as it is considered
a major innovation in supply chain governance within the industry. However, what is
missing is more data of the type I collected from CSHQ that discussed the detailed and true
challenges suppliers faced in undertaking supplier governance.
Another limitation I have come to realise only in hindsight and after presenting my
research in conferences and speaking to others about it is not including the voice and
perspectives of workers. The decision to not include workers was made from the beginning
as my interest was to learn about those ‘responsible’ in making decisions and implementing
governance measures on health and safety. I also felt that speaking with trade unions would
give me a ‘picture’ of the situation faced by workers. And, perhaps most importantly, I
knew that trying to gain access to workers would be a ‘whole other ball game’ after having
early conversations with CSOs that spoke of the difficulties of gaining access to workers,
for example in China, that required disguise strategies and other tactics that may have put
their lives in danger. Knowing that the Malaysian government had prevented unionisation of
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the electronics industry, gaining access to workers, who were bussed in and out of factories
– some of which were bordered with barbed wires – would be quite the challenge to do it
alone.
Finally there are always some limitations to gathering qualitative data. They are
shaped by the types of questions asked, the situation in which the interview took place, and
the relationship between the interviewer and respondent. As was mentioned above, my
historical links to Malaysia certainly played a role in obtaining some interviews and perhaps
also slightly swaying some of what the respondents were willing to share with me, e.g.
opinions on racial politics by some of the ethnic Indian respondents. Finally, those firms that
chose to speak with me likely had some interest in the topic of environment, health and
safety governance, e.g. most of the first tier supplier respondents were well trained in the
topic and had a lot to share with me.
B. Ethical issues
HP is the only firm revealed in this PhD thesis. This is done for various reasons.
Firstly, the HP manager interviewed had given me, through a prior informed consent form,
permission to name the firm as well as her name and title. While I personally chose to keep
the name of the manager anonymous, I was glad to have received permission to make the
global lead firm known. Naming the lead firm in this research gives it a real-world context
and a bit of a reference point to the complex industry being discussed. Encouraging
transparency within HP was I believe part of the manager’s role at the firm. During the
interview the manager informed me that engaging with researchers and CSOs was her job.
She claimed that among other firms in the industry, HP (proudly) had the most engagement
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with CSOs. Having started a CSO herself in the past, the manager stated “their roles (of the
CSOs) are to protect society and so that is a critical role and I think we really not only
embrace it but we incorporate it into our strategy” (2008). I believe the fact that she spent
close to three hours over breakfast in her hotel to answer my interview questions was
attestation to her statements and for wanting to be engaged and open about HP with me.
Moreover, HP was quite public about its supply chain management and governance
activities and challenges. In addition to the interview with the manager, I was able to find a
lot of information from various forms of media from articles, to a podcast of a seminar, and
an interview aired on YouTube with the HP Director of Global Social and Environmental
Responsibility. The inclusion of information provided by different HP managers in the
thesis may present an additional challenge. Those HP managers whose names are revealed
in the media are included in the thesis. As a result, it may seem at times that I have revealed
the name of my interview respondent. In the pursuit of triangulating my data with other
public sources, a bit of confusion and messiness with maintaining the anonymity of the
interview respondent may be felt by the reader.
4. Conclusion
This chapter has reported on my methods and experiences of conducting research
and fieldwork for my PhD. The journey of my fieldwork and research went relatively
smooth and in the end I had a large amount of primary and secondary data to work with.
While there are some limitations and challenges to my data collection, I hope to show
throughout the thesis that my research methodology led to a rich and in-depth look into a
particular situation – in this case the health and safety governance of a particular segment of
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the HP led GPN – that presents an accurate picture of the complex dynamics and outcomes
of this particular story.
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CHAPTER 5
HOW HEWLETT PACKARD GOVERNS ITS SUPPLIERS
1. Introduction
This chapter reports on and discusses the empirical findings on how HP governs the
environmental health and safety of its suppliers. It aims to answer the research question:
What private governance mechanisms are used for safeguarding environmental health and
safety in the personal computer global production network? It will do so only partially
because the following two chapters on first tier suppliers and second tier suppliers will
further elaborate on their governance experiences down the GPN.
HP is considered to have one of the more robust supply chain governance
programmes in the electronics industry and considered a leader on CSR. It has received
recognitions and awards for this since the early 2000s. For example, in 2003 the ISI Asset
Management ranked it a “race leader” on labour and environmental management. In 2004,
HP was awarded for having the Best Sustainability Report by Ceres (HP 2004). More
recently in 2008, it was rated number eleven in the Accountability Rating10 of the 100
largest companies and was on the Dow Jones Sustainability Index and FTSE 4 Good Index.
It also received the R. Gene Richter Award for Excellence in Supply Management in 2008.
In 2009, it was ranked number one in Newsweek’s greenest top 500 American corporations.
In some quarters, HP has been described as more proactive on social and environmental
responsibility than Nike was in the sportswear industry (Saturday Extra 2006). According to
10
Accountability Rating is a global index that measures “the extent to which companies have built
responsible practices into the way they do business and their impact on the economies, societies and
environments in which they operate.” See www.accountabilityrating.com
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one of its managers, it expends more resources on supplier governance and CSR than other
firms in the industry (personal interview 2008). It is also credited with helping to create the
EICC.
The objective of this chapter is to get inside the world of how HP governs the
environment, health and safety conditions of its suppliers. This will be done mainly by
reporting on the data collected from a semi-structured interview with a global manager on
supply chain governance and information provided in its annual CSR reports. Much of the
narrative in the first half of the chapter is from HP - namely sections three on its various
mechanisms to govern the environment, health and safety of its suppliers, section four and
five on the different implementation tools to assess its governance programme, and section
six on HP’s success and challenges in implementing its governance programme and its
future strategies for improvements. This is done in order to give the reader an understanding
of the experiences and perspective of supplier governance as HP sees it. This will be
contrasted with the actual experiences on the ground by first tier suppliers and second tier
suppliers in the following two chapters.
Before discussing its governance programmes in sections three through six, the
chapter begins with the key drivers that led HP to expend a significant amount of resources
for supplier governance. It points to various external pressures that range from civil society
organisation campaigns to large customers and investors and shareholders that continue to
drive its activities.
Towards the end of the chapter, section seven discusses the key characteristics that
have emerged from the HP narrative and experiences of governing the environment, health
and safety of its suppliers. It points to how its governance relationships with its first tier
suppliers are affected by broader structural factors that create challenges to governing
suppliers at the bottom of the GPN. Section eight concludes the chapter.
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2. Drivers for environmental and labour governance of the supply chain
There are two major milestones in the development of supplier governance
programmes at HP. The first was in 2002 when the global lead firm introduced a Supplier
Code of Conduct – the first of its kind in the electronics industry - and the second was its
involvement in the release of an industry wide code of conduct, the Electronic Industry
Code of Conduct (EICC), in 2004. Both of these developments coincided with significant
external pressures from civil society organisations.
In the early 1980s, several electronics firms, which included HP, AMD and Intel,
were implicated in leakages from underground stores of toxic waste into the drinking water
supply in what is considered Silicon Valley in California. This resulted in a rise in cancer
incidences and reproductive health problems among electronic factory workers and
surrounding communities. By 1986, the US Environmental Protection Agency had identified
twenty nine “Superfund” sites (hazardous waste sites ordered for clean up by the US federal
government) in the Silicon Valley region as a result of the leakages. These incidences
reversed the image of the electronics industry as modern and clean and environmental
groups began increasing scrutiny and criticism over the industry (Byster and Smith 2006;
Ted Smith interview 2008).
By the mid 1990s, there were increasing concerns over worker conditions in the
global supply chain of the electronics industry. According to Ted Smith - co-founder of the
environmental and workers rights group International Campaign for Responsible
Technology (ICRT) – these concerns originated with attempts by janitors working at a HP
printed circuit board manufacturing plant to organise themselves for better working
conditions. HP disregarded their claims because they were subcontracted and not HP
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employees. When the factory closed and the work outsourced to a developing country,
concerns arose over whether workers in the new location and surrounding communities
would face similar situations that occurred in Silicon Valley. This led to calls for “supply
chain responsibility” by civil society organisations. ICRT with two other CSOs filed a HP
shareholder resolution in 1999 requesting its management to report on working conditions
throughout its supply chain. According to Ted Smith, this eventually led to HP creating the
very first supply chain code of conduct in the electronic industry in 2002 (Ted Smith,
personal interview, 2008).
In January 2004, the release of a report by the Catholic Agency for Overseas
Development, “Clean Up Your Computer: Working Conditions in the Electronics Sector”,
shocked the industry with revelations of egregious practices in outsourced factories in
developing countries. The report, based on worker interviews in Mexico, Thailand and
China in factories outsourced by IBM, HP and Dell, revealed unsafe and hazardous working
environments and other worrying labour conditions. In the following months, the implicated
firms, other brands and contract manufacturers (HP, IBM, Dell, Celestica, Flextronics, Jabil
Circuit, Sanmina SCI, and Solectron) came together and developed the EICC (firms,
personal interviews 2008; International Metalworkers’ Federation, personal interview 2008;
GoodElectronics members, personal interviews 2010). HP is credited with playing a lead
role in developing the code by bringing the different firms together and sharing its own
knowledge, templates, and data on supplier governance (HP 2006).
Today, HP faces pressure and incentives for continued and improved supply chain
governance from a variety of external stakeholders. The HP manager ranked these drivers
from most significant to least in the following manner: 1) large European customers (e.g.
Ericsson, Migros, British Telecom, Vodafone, Marks and Spencer, Unilever, Philips) and
government contracts/public procurement (e.g. the Swiss government) – half of European
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customers were said to measure HP based on social and environmental issues (Tony
Prophet, Senior VP Hewlett-Packard: Social Good and Environmental Sustainability 2007);
2) investors and shareholders; 3) legislation and regulation, for example EU directives on
environmental impacts of industrial activities are a significant driver because of HP’s major
customers located in Western Europe; 4) CSOs; 5) the media; and 6) HP’s own employees
(HP manager, personal interview, 2008).
3. How HP governs the environmental health and safety conditions of its suppliers
In 2008, HP had around 600 suppliers located in over 1,200 manufacturing sites
employing over 300,000 workers (see Table 5.1). In 2009, the number of suppliers rose to
700. HP reports having the most extensive global supply base in the electronics industry
(HP 2008; HP Global Citizenship Reports 2002, 2004, 2009; personal communication, HP,
2008).
Table 5.1. Major locations of HP product materials, components and services suppliers
Region and countries Percent of total spend
Americas: Brazil, Canada, Costa Rica, Mexico, United States
20%
Europe, Middle East and Africa: Czech Republic, France, Germany, Hungary, Ireland, Israel, Italy, Netherlands, Poland, UK
5%
Asia Pacific and Japan: China, India, Indonesia, Japan, Korea,
Malaysia, Philippines, Singapore, Taiwan, Thailand
75%
Source: HP (2008)
HP had a large corporate social responsibility (CSR) department employing around
70 to 100 persons in 2008. According to the HP respondent, unlike other firms in the
industry, the department receives adequate management support and sufficient resources as
long as the business case and justifications are made for its CSR activities (personal
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interview HP, 2008). Among the different issues of environmental, health and safety,
ethical, and human rights conditions of its suppliers’ operations, environment, health and
safety (EHS) is said to be a large governance area for HP (HP manager, 2008).
HP’s supplier governance mechanisms on EHS are part of its Social and
Environmental Responsibility (SER) Programme, which was introduced in 2002. The SER
Programme consists of 1) a Supply Chain Social and Environmental Responsibility
(SCSER) Policy, which is based on its internal Human Rights and Labour Policy; 2) the
EICC (which replaced the HP Supplier Code of Conduct in 2004); 3) a General
Specification for the Environment; and 4) an implementation programme.
The SCSER Policy sets out five principles suppliers must follow with regards to
operations, products, and services supplied to HP. They are: 1) complying with all national
and applicable laws and regulations; 2) understanding and reducing environmental impacts;
3) ensuring parts and products are Democratic Republic of the Congo conflict-free and
establishing practices consistent with the ‘OECD Due Diligence Guidance for Responsible
Supply Chains of Minerals from Conflict-Affected and High-Risk Areas’; 4) having in place
effective management systems, objectives, targets, assessments and continual improvement
of integrated environmental, occupational health and safety, human rights and labour
policies, and ethics in their decision-making processes; and 5) providing “clear, timely,
accurate and appropriate reporting to HP upon request” (HP 2011). HP believes its SER
Programme is the most comprehensive in the electronics industry (HP 2008).
The EICC outlines conduct on labour, health and safety, the environment,
management systems and ethics. On health and safety, the EICC refers to the OHSAS 18001
and ILO Guidelines on Occupational Safety and Health. The code calls for the use of a
management system to address health and safety risks. It also calls for proper design,
engineering and administrative controls in addition to maintenance and safe work
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procedures, training and use of personal protective equipment. Emergency situations, injury,
illnesses and exposures to chemicals are to be identified or classified, assessed or evaluated
and reported on. The EICC states that in addition to minimising incidences and illness, “a
safe and healthy work environment enhances the quality of products and services,
consistency of production and worker retention and morale”.
The EICC has become a central part of the supplier governance programme for HP
over the last few years. The code was the foundation for its audits and High Performance
Supplier Scorecard (HP 2004; HP 2007). Since 2007, there has been an explicit push for full
conformance of the EICC by suppliers. In 2009, HP stated for the first time that all new and
existing suppliers must conform to the EICC (HP 2009).
The General Specification on the Environment prohibits the use of certain chemicals
and materials in HP products and manufacturing processes. Prohibitions are in line with the
EU Directive on the Restriction of Hazardous Substance (RoHS) and the California Safe
Drinking Water and Toxic Enforcement Act of 1986. It also has provision on battery
material (lithium) content and plastic packaging material, restrictions on ozone depleting
substances, labelling and chemical registration requirements, among others. HP does not
explicitly require its suppliers to adhere to international standards. In its Global Citizenship
Reports (GCRs), HP has often stated it does not rely on standards such as OHSAS 18001 or
ISO 14001 since suppliers without these certifications can and do have rigorous SER
management systems. However, the interview with the HP manager revealed that
international standards were a feature assessed in supplier governance capabilities.
These different requirements of the SER Programme apply not only to HP suppliers
but also to suppliers to their suppliers (i.e. second tier firms) and, according to the HP
manager, labour agencies that recruit contract workers. SER requirements are written into
contracts with HP suppliers and become the suppliers’ liabilities. According to the manager,
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the contract holds HP suppliers accountable to HP for their actions (HP global manager,
personal interview 2008).
As part of the SER Programme implementation procedures, suppliers must sign a
Supplier SER Agreement, complete a self-assessment questionnaire, and have in place their
own written SER policies. Suppliers are also expected to maintain appropriate management
systems with a commitment to ‘continuous improvement’ – which is considered a key
criterion for supplier performance. They are to collect and maintain data conducive for self-
monitoring and set performance objectives and implementation plans with “defined
timelines and metrics”. Upon request, suppliers are to cooperate in periodic site audits and
provide “clear and accurate reporting” (HP 2009).
When a supplier is found to be in non-conformance, minor violations must be
resolved within 180 to 360 days. Major violations, however, must be resolved more quickly
within 30 to 180 days and a detailed corrective action plan provided by the supplier (HP
2008). Five types of violations, however, were said to lead to automatic termination of
supplier contracts. They were 1) child labour, 2) forced labour (which includes confiscation
of worker documents to restrict movement, falsely promising a job or wages, preventing
employee contract termination, and charging workers for their jobs, e.g. training fees), 3)
immediate danger to health, safety and lives, 4) violation of environmental laws that cause
serious and immediate harm to the community and 5) resistance to implement management
systems and engage with HP on its governance activities and assessments. Contract
termination, however, is the exception rather than the rule according to the HP manager (HP
personal interview 2008). According to the HP manager, contract termination would take
place if there was complete resistance on the part of the supplier to engage with HP’s
governance programme. Up until 2006, HP had only terminated less than a dozen suppliers
– all of which were due to inadequate management systems (O’Marah and Karofsky 2006).
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HP is said to have a “very partnership oriented not a policing approach” with its suppliers. It
finds communication and collaboration more effective and prefers to work with suppliers to
build their capacity for achieving compliance. HP also finds contract termination a last
resort because it may create a worse off situation for workers by leaving them without jobs
(HP manager 2008). Switching suppliers may also not be an easy and quick task given that
new suppliers must be closely assessed on whether they can meet performance requirements
such as “technology, quality, reliability, delivery and cost” (Bast et al. 1995: 223).
4. How HP assesses compliance of its SER Programme
Supplier Relationship Managers (SRMs) in the Procurement Departments of HP are
responsible for communicating and implementing the governance programme and
evaluating supplier performances. According to HP, SER considerations are included in
supplier evaluations, contract development, and execution management processes
undertaken by SRMs (HP 2002; HP 2004). SRMs are said to be trained on SER and must
understand it and consider it in sourcing decisions (HP 2009). In 2005, HP introduced a
web-based extranet tool to ease data collection and provide real-time information to both
suppliers and SRMs.
Of the different SER Programme requirements, the EICC requires more
sophisticated implementation procedures. The EICC is implemented with suppliers using a
four phase implementation process. In the first phase, suppliers are introduced to the EICC
and their commitments to implement it secured. HP then conducts a preliminary risk
assessment using a Supplier Risk Assessment tool to identify priority or high risk suppliers
for further evaluation. In the early part of the decade, HP targeted its largest suppliers for the
risk assessments, which made up the highest percentage of its spending and resulted in the
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greatest yield. These were also key suppliers with whom a disruption in supply would be
problematic for HP. Today, suppliers are identified based on criteria such as geographical
location (e.g. in countries where monitoring and enforcement are weak), manufacturing
processes (e.g. chemical and labour intensive production processes), relationships (e.g. large
contracts for branded products or new suppliers), and company information (e.g. non
conformances) (personal communication, HP, 2008). Supplier firms that are themselves
global brands are generally considered low risk (HP 2008).
In phase two, suppliers identified as high risk must complete a Self Assessment
Questionnaire (SAQ) hosted on an on-line programme – the Electronic Tools for
Accountable Supply Chains (E-TASC). The SAQs provide a set of metrics by which
suppliers and HP can evaluate their performance against the code of conduct. E-TASC also
generates a supplier performance scorecard identifying areas for improvement. An
important feature of E-TASC is an on-line database of SAQ results that can be viewed by all
EICC members in customer-supplier relationships.
Phase three is where supplier performance validation takes place. This involves
audits, corrective action plans, and follow-up audits. High risk suppliers are to receive an
annual on-site facility audit as part of the shared Validated Audit Process of the EICC.
These results are also to be made available on E-TASC and shared with other customer
firms to the suppliers that are members of the EICC. The shared Validated Audit Process of
the EICC, however, had a weak start due to problems such as a lack of proper skills and
poorly conducted pilot audits by the EICC contracted auditors. In 2008, HP conducted
audits on only ten suppliers under the shared EICC Validated Audit Process (HP 2008). HP
also employs its own global network of trained auditors. The HP manager reported 50 to 70
auditors located worldwide in countries like Mexico, India, Singapore, Taiwan, Brazil, and
China. Many of them were said to be concentrated in China (personal interview, HP
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manager, Switzerland, June 2008; O’Marah and Karofsky 2006). HP also uses a third party
monitor, Verite - an organisation that focuses on labour rights abuses in off-shore factories –
to monitor suppliers where allegations of improper conduct have been made by CSOs for
example. It was reported in 2006 that HP audited its ‘high-risk’ suppliers up to four times a
year (Varmazis 2006). Verite also audits HP to assess whether its supplier audits were
undertaken properly.
Finally, phase four is for capacity building through training, education and
collaboration with suppliers (EICC Annual Report 2008; EICC Annual Report 2009). HP
trains and monitors some of its contract manufacturers and first tier suppliers to govern and
audit their own (second tier) suppliers. HP completed such a programme with Corporate
Social Responsibility Europe and Copenhagen Business School on small and medium sized
enterprises in Central and Eastern Europe from 2006 to 2008 that involved training contract
manufacturers such as Flextronics, Foxconn, and Sanmina-SCI (Andersen and Skovgaard
2008; HP Global Manager, personal interview, 2008). In 2008, it worked with the
International Disk Drive Equipment and Manufacturing Association on working conditions
in the hard disk drive supply chain in Southeast Asia. In 2009, HP and other brand firms
joined a project called Migration Linkages led by Business for Social Responsibility (BSR)
to share best practices in managing migrant labour in Malaysia. HP also began efforts to
create a global framework standard for suppliers to evaluate migrant worker labour policies
and practices that same year (HP 2009).
HP has also undertaken capacity building activities in collaboration with other non-
CSR organisations, for example CSOs and the World Bank. Most of these have been
concentrated in China and Mexico. In China, HP was involved in the Focused Improved
Supplier Initiative project which aimed to see how productivity of Shenzhen, Chinese
suppliers was affected by implementation of the EICC from 2006 to 2008. It was part of a
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World Bank Foreign Investment Advisory Service initiative involving several stakeholders
in Shenzhen, China. In 2007, HP partnered with three Hong Kong CSOs to train workers on
labour rights and worked with management to improve its dispute resolution systems at
different supplier sites in Southern China. The goal of this project was to improve worker
conditions through employee efforts rather than external auditors (HP 2009). The results of
this project were assessed and studied by the Harvard Negotiation and Mediation Clinical
Program in 2010 and contributes to work at the Corporate Social Responsibility Initiative on
new labour grievance procedures at the university led by Professor John Ruggie.
In Mexico, HP was part of a programme to improve worker communication,
education, and worker grievance processes with a local CSO. HP was also involved in a
BSR project to improve the health of women factory workers in Mexico (HP 2008). HP has
also been part of the Global Social Compliance Program, the Beyond Monitoring project by
BSR, and the Global Standards Monitoring Initiative. It has also been party to reviews by
the Stanford Business School. More recently, it has engaged with CSOs on responsible
mineral mining practices (HP 2007; HP 2008; HP 2009).
5. Two key implementation tools: the audit and scorecards
Two key tools HP uses for implementing and assessing supplier compliance of the
EICC are audits and metrics such as benchmarking and scorecards. Audits and metrics are
implementation tools of governmentality technologies that make governing at a distance
possible and feasible (Rose and Miller 1992). Information on EHS of supplier sites in far
away locations is turned into data or a calculative measure that can be reproduced in
documents and travel far distances from supplier sites to customer firms. As discussed in
chapter two, these tools make up the techniques of governmentality that are used to
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discipline others to participate in a form of self-governance that is taken for granted or
considered a norm or business as usual (Power 1997). This section describes how HP
conducts its audits and uses metrics to govern its suppliers. In chapter six, these findings
will be assessed against the experiences of some of the first tier suppliers who are on the
receiving end of these governance tools.
A. The audit
The audit is said to be a central part of supply chain governance for HP (HP 2007).
HP auditors are said to speak the local language and know the local culture and their visits
are conducted by at least two auditors and can last up to two days or longer (O’Marah and
Karofsky 2006; HP personal interview 2008). HP outlines three principles for its audits.
First, its philosophy is based on collaboration and non-conflict between supplier and audit
teams. HP refrains from making unannounced audits (unless needed to investigate serious
issues) in order to cooperate with suppliers, build good relationships, and avoid conflicts
with its collaborative audit approach. Second, the purpose of audits is to determine
conformance with the EICC. It is mainly used to verify a proper management system and
that there is systems thinking in place. Third, its objective is to identify areas for continuous
improvement and focus efforts for maximum change and the audit is used more as a ‘carrot’
than a ‘stick’ (HP 2007; HP 2008; HP 2009).
According to an HP manager, because most non conformances are said to be due to
management system breakdowns, auditors are said to perform ‘root cause’ analyses on
problems by focusing on the quality of management systems more than compliance with
laws and requirements (HP global manager, personal interview, 2008; HP 2004).
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In the opinion of the HP manager, the conduct of root cause analyses by HP auditors
is different from other firms. HP audits are said to be more like “strategic monitoring” than
“audits” (HP personal interview 2008). Ensuring suppliers have proper management
systems is a key part of supplier governance. According to the HP manager, management
systems thinking is an important feature of the electronics industry business model and goes
along with its strive for efficiency and speed. This way of thinking was also the reason the
HP manager felt that firms in the industry could work together quickly on developing an
industry wide code of conduct (HP manager, personal interview, 2008).
B. Scorecards
HP has included the performance of suppliers against its SER Programme in a
Performance Supplier Scorecard. The scorecard was introduced in 2004 to assess the overall
business performance of a supplier. It has five equally weighted categories of ‘cost’,
‘quality’, ‘supply/delivery’, ‘technology’, and ‘business fundamentals’. SER performance of
suppliers falls into the latter ‘business fundamentals’ category and makes up 10% of the
overall score. In recent years, the scorecard has been used to rank management capacity and
performance against the EICC (HP 2009). HP also completes a reverse scorecard that allows
suppliers to rate its supplier management process (HP 2007).
The supplier scorecard makes it clear that HP implements and assesses compliance
of its SER governance programme much like it handles aspects of its business relationships
(they are in fact incorporated into it). As Judith Glazer Director for Global Social and
Environmental Responsibility put it HP manages its supplier SER performance “much like it
manages other business requirements like quality” (InfoWorld 2007). Much like the power
of the audit, the borrowing of another governance technique from the business aspects of
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industry such as the scorecard is taken-for-granted and becomes a common sense approach
for governing non-business aspects like EHS without much question (Miller and O’Leary
1993; Power 1997).
6. Successes and challenges in governing health and safety conditions among
suppliers
HP, it was revealed by the manager interviewed, has more confidence in the
governance capability of some first tier suppliers than others. For example there is more
confidence in Flextronics, which was said to have worked on improving its control systems
over several years, over Foxconn. The higher confidence level afforded to suppliers like
Flextronics is due to their being established in developed countries where there is a history
of environmental and human rights regulations and standards and record of compliance.
This same level of confidence however is not afforded to suppliers based in developing
countries where regulatory enforcement is weak. Hence, suppliers and contract
manufacturers in developing countries, like Foxconn, was said to receive more scrutiny
from HP, where lack of regulatory enforcement exists. The manager was also aware that in
China managers ‘prepare’ factory sites and workplaces for auditors (HP personal interview
2008).
According to the HP manager, HP has audited all of its first tier suppliers (HP
manager, personal interview, 2008). From 2005 to 2009, HP conducted 590 supplier site
audits (a quarter of which were follow-up audits) and by 2008 it had audited all of its high
risk factory supplier sites (HP 2008). These audits revealed that the outcomes of supplier
SER performances had not significantly changed over the years.
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In the early 2000s, results from audits were reported to be inconsistent with the
results from supplier self-assessment questionnaires. The main concerns were lack of
management systems, mechanisms in place for workers to express concerns, worker
training, guidance for environmental practices, implementation of labour, health and safety
regulations, and a push down the supply chain of HP requirements (HP 2003). From 2005-
2006, the frequency of major non-conformance - assessed against the EICC - were
concentrated in health and safety, labour and labour management systems, and
environmental, health and safety management systems (see Table 5.2).
Table 5.2. Total major non-conformances of the EICC by audited high risk suppliers for 2005-2006
EICC section Percentage of non-conformance
Health and safety 25%
Labour 23%
Labour management system 18%
Environmental, health and safety management
system
12%
Environmental 8%
Ethics 7%
General 7%
Source: HP (2008).
On health and safety, a few serious incidences have been highlighted by HP in its
Global Citizenship Reports (GCRs). For example, in 2004, a Chinese supplier had problems
with the use of personal protective equipment (PPE) and handling of hazardous materials.
Managers were also not assigned responsibility to design, implement, and monitor
environmental health and safety management systems. In 2009, fires occurred in several
Chinese factories. In response, HP contracted the WSP Group, a business consultant on
environmental health and safety, to conduct fire safety and emergency preparedness training
with the suppliers (HP 2009). In another incident in 2005, HP re-audited a site with
concerns over its industrial hygiene control management system, safety processes and
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manuals, production lines and administrative areas, the training provided were on physically
demanding work, PPE use, and chemical and hazardous waste storage (HP 2005).
The annual GCRs do not discuss the health impacts of specific production processes
or chemicals. When asked about the health impacts of printed circuit board manufacturing
and assembly, the HP manager stated that much of the manufacturing was automated.
However, the assembly portion involved “tons of physical labour” and was characterised as
“most labour intensive” by the manager. It was felt the key health and safety problems of
printed circuit board assembly were vision problems and proper storing and handling of
cleaning solvents and avoidance of direct skin contact. The vision problem, according to the
manager, however was not the occupational risk of visual impairment caused from soldering
activities under a microscope for many hours. Rather the manager spoke of how only fifty to
sixty percent of workers with visual impairment had corrective glasses in developing
countries and that the affect of this was seen in defects in PCBs assembled by the visually
impaired workers. The HP manager also believed the toxic heavy metal lead was no longer
used in soldering activities of printed circuit board assembly although small amounts may
be used for repair, which according to the manager would require proper ventilation (HP
personal interview 2008). This is however contrary to the actual practices found in factories
in Penang, Malaysia, which will be discussed in chapter seven.
When asked about exposures to chemicals that have long latency periods before the
onset of disease, the HP manager stated that workers should not “touch them” (the
chemicals) and that is the reason why much of printed circuit board manufacturing is
automated (the manager however did not address this issue with regards to non-automated
PCB assembly). Because printed circuit board manufacturing involved a considerable
amount of dangerous chemicals, HP was said to outsource such activities to highly capable
firms such as Intel and AMD that have in place modern production facilities. ‘Clean rooms’
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in these factories were described to be like ‘space ships’ with workers in ‘spacesuits’ in a
‘very sterile environment’. It was the manager’s belief that as one moved down the supply
chain to lower tier suppliers, the lesser the amount of heavy chemical intensive activities
were undertaken (HP personal interview 2008).
In 2006 HP hired Environmental Resources Management (ERM), a private
consultant on environmental, health and safety, risk, and social consulting services, to assess
its supplier engagement models and tools. ERM concluded that the SER programme was
strong and effective. The assessment project involved verification audits of supplier sites in
China, Malaysia, Mexico, and Thailand. Despite the final positive conclusion, however,
recommendations for further improvement included better auditing of the EICC and better
training of auditors on risks and local regulations on health and safety. It also found a below
50% completion rate of corrective action plans (HP 2006). In another study of the SER
programme, Anderson and Gottlieb (2008) found that SRMs did not always consider the
social and environmental performances of suppliers in their assessments.
Another challenge noted by the HP manager was the context of the host state in
which suppliers were located. This was particularly the case with Malaysia, which I turn to
in the next section.
A. Outcomes in Malaysia
Until 2006, HP had conducted fifteen initial and two follow-up audits of supplier
sites in Malaysia, which employed a total of 14,500 workers (HP 2006). Experiences from
visits to suppliers in Malaysia by the HP manager revealed a set of challenges unique to the
country. The HP manager based much of the concerns on culture, racism, and
discrimination. Many concerns were referred to as “cultural clashes” between Muslims and
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non-Muslim workers, for example the difference in the modesty of dress by women. There
were also “interesting practices” such as beauty contests which were stopped by the HP
manager during one of her visits. The Malaysian government was said to support policies
that were considered “pretty weird” (HP manager, personal interview 2008). Malaysia has in
place discriminatory government laws against foreign workers. For example, foreign
workers are prohibited from getting married or becoming pregnant while in Malaysia. This
had led to factory owners restricting their movements outside factory compounds on their
days off. Managers of suppliers were said not to understand why HP found the issue
problematic since it was mandated by government regulation. The HP manager concluded
that in Malaysia, “it is some of the more difficult stuff I’ve had to deal with” (HP personal
interview 2008).
Another issue, which was noted to be unique to Malaysia, was the use of labour
employment agencies. It was said suppliers use these agencies to remove themselves from
the administrative burden of dealing with high turnover rates. These agencies at times built,
owned, and controlled dormitories for foreign workers. The HP manager found the
motivations of the agencies not always in the best interest of workers. Questionable
practices by these agencies included foreign workers paying fees such as initial training
costs, which in the opinion of the HP manager was equivalent to workers “paying for their
jobs”. It was also not clear under which country laws the employment agencies were
operating in. Workers were at times paid in the currency of their origin country. HP found
these agencies not well regulated in Malaysia and was trying to monitor the situation.
Finally on the issue of labour unions, where the Malaysian government had
essentially banned the organising of electronics workers, the HP manager found the
situation similar to that in China and Mexico. Because HP had outsourced much of the
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manufacturing activity in Malaysia to Flextronics, the manager trusted that the contract
manufacturer was handling the situation (HP Global Manager, personal interview, 2008).
B. Wider challenges to supplier governance
In the early part of the 2000s, HP was explicit in its GCRs about the challenges,
complexity, and difficulties of supply chain governance on social and environmental
conditions. HP found ensuring consistent standards and communication across suppliers
with multiple manufacturing sites difficult. Its ultimate goal at that time was looking for
ways to verify supplier performance in a cost-efficient way and without threatening its
world-class cost structures. The sources of these problems were attributed to the large
number and geographical spread of its suppliers. There were also cultural, language, and
confidentiality issues to contend with (HP 2002).
At the same time, suppliers also found requests from multiple customers and
stakeholders overwhelming, confusing, and costly. They were also said to have questioned
the ability to meet HP’s SER standards without compromising on HP’s cost requirements.
HP’s response was that meeting the latter should not be done at the expense of the former.
The GCRs noted that complying with environmental and labour standards can bring about
higher quality products or that “happier employees can make the company more successful,
benefitting everyone” (HP 2005). Pointing to similar results in other industries, HP
discussed making a ‘clear business case’ to show that meeting SER requirements lowers
employee turnover, accidents and illnesses, and improves productivity and quality. What the
HP manager found particularly problematic for achieving supplier governance was the
business environment of the electronics industry. It was focused on quarterly returns and
‘short-termism’ instead of long term and sustainability goals. Firms in developing countries
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were said not to realise the cost of high employee turnover (HP Global Manager, personal
interview, 2008). The argument made was that becoming socially and environmentally
responsible will bring about benefits in the same way that quality standards did in the 1980s
(O’Marah and Karofsky 2006; personal interview, Switzerland, June 2008; InfoWorld
2007). Change was said to take time and required building management capabilities and
challenging prevailing cultures. The key message in the GCRs were for suppliers to
recognise that a firm’s workforce is its greatest asset and that while investing in training and
better pay is costly and time consuming suppliers must connect environmental and social
standards with increased profitability in the long run (HP 2005; HP 2006; HP 2007; HP
2008; HP 2009).
“The big challenge” in supply chain governance over social and environmental
conditions, according to the HP manager, was reaching all bottom tier suppliers. Second tier
supplier performances are generally tracked through first tier suppliers with whom HP has a
contract. HP finds that without a contract (with second tier suppliers) it has little leverage
over their performance. This logic is also in keeping with the EICC where first tier suppliers
are responsible for implementing the code with their (second tier) suppliers. The HP
manager also placed the responsibility over environmental and social conditions on the
firms that have the “machines and equipment” and that undertake the actual manufacturing,
i.e. not HP (HP manager,personal interview, 2008). In the long run, HP aims to track lower
tier supplier performance through the EICC implementation tools. The ultimate goal,
according to the HP manager, is for suppliers to “own” the governance mechanisms and no
longer be monitored (personal interview, Switzerland, June 2008, HP 2007).
Other challenges to implementing the SER Programme involve the need to
understand the local context in which supplier sites are located. Developing countries were
also said to have norms different from developed countries (HP manager, personal
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interview, 2008). This hints at difficulties of managing suppliers from far away headquarters
in the United States. Government regulation was considered necessary because at times a
company cannot be motivated without legislation. Regulation was also needed to level the
playing field for example by requiring use of safer chemical alternatives by all firms in the
industry (HP Global Manager, personal interview, 2008; Grove 2007). At the same time,
however, it was felt regulations can be misguided or inefficient. Therefore, HP finds it
important to work with policy makers to increase their awareness of industry process and
the impacts legislation can have on it. HP has a Government Affairs function that engages in
discussions over new legislation in the United States and Europe whose goal is “to
participate in the development of rational and science based laws and regulations”
(Lueckefett et al. 1997: 91). In the end, the HP manager felt a need for a balance of
voluntary programmes and government regulations
7. Key issues in supplier governance over the environment, health and safety
The HP model of supplier governance involves the use of self regulatory
management systems, metrics, measurements, and audits. It is a governance system that
requires considerable documentation to communicate progress and compliance. The use of
calculative technologies such as scorecards and audit results allow HP to govern its
suppliers at a distance. Trust is also an important factor given that HP must rely on the self-
reporting and self-assessment of its suppliers. HP is also careful to note that it does not
undertake a ‘policing’ role rather a collaborative one with its suppliers. It also finds severing
a contract based on non-compliance a last resort. Working with suppliers to correct their
non-conformances and improve their environmental and labour conditions is the preferred
approach.
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What is clear from the discussion above is that HP has the capacity to undertake a
robust supplier governance programme. It has audited a large percentage of its first tier
suppliers and engaged in training and capacity building efforts with key suppliers,
particularly contract manufacturers, to help them govern their own (second tier) suppliers.
This will be contrasted with the experiences of first tier and second tier suppliers in the
forthcoming chapters.
Despite its considerable efforts, the main areas of concerns reported from audit
results have remained the same over the years. They are concerns over labour conditions,
health and safety, and management systems. While HP is undertaking a lot of work on
supplier governance and its GCRs report on a tremendous amount of activity and is seen to
be doing things, it is however not clear what the actual conditions of environmental, health
and safety are in the manufacturing sites of its suppliers. HP does not provide specific
information into the actual harms and conditions of particular production activities, such as
the printed circuit board industry, and leaves the reader to trust the audit and other
verification results conducted by HP and HP employed organisations. In return, HP relies on
and trusts its large suppliers, such as contract manufacturers, to ensure worker conditions
are taken care of in places such as Penang, Malaysia where labour organising was banned.
HP recognises there are challenges with reaching lower tier suppliers with
governance measures like the EICC. It finds that without a contract, however, it has little
leverage over lower tier suppliers. HP trusts that its first tier suppliers will fulfil their
responsibility and obligation to govern second tier suppliers. Thus, second tier suppliers are
left out of the governance efforts by HP and as will become clearer in the following chapters
they fall into an overall governance gap in the GPN.
In recent years, HP has shown that a significant part of its strategy to improve
supplier governance is through collaboration with CSOs and industry based CSR groups.
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Because it is unable to uncover all problems faced in its global supply chain despite the
complex set of governance measures in its SER Programme, HP relies on the work of CSOs
to alert it to problems and concerns in different pockets of its supply chain (HP manager,
personal interview 2008). This has certainly raised new issues for HP such as the use of
conflict minerals from Africa.
What HP has not addressed openly, however, are the ways in which the challenges
of governing suppliers are by-products of broader, structural features of the electronics
industry. HP’s supplier governance programme is implemented within a contradictory
commercial logic similar to other industries. In the electronics industry, suppliers compete
intensely on price and speed, face high demand volatility, and short product life cycles while
maintaining quality in line with brand name customer demands for increasingly cheaper
products (firms, personal interviews 2008; International Metalworkers’ Federation, personal
interview 2008; and Holdcroft 2009). With tighter budgets, suppliers face challenges to
comply with standards and codes. This presents a ‘Catch 22 situation’ suppliers find
themselves in where meeting quality specifications moves value up the chain to brands
while costs and risks over social and environmental conditions move down the chain to
suppliers (Barrientos 2008).
Because suppliers are able to participate or compete in the GPN only when they can
manufacture at the lowest price, highest quality and fastest speed possible, CSR compliance
becomes a lower priority for suppliers (Lim and Phillips 2008). According to HP, these
manufacturing challenges often result in excessive working hours or reliance on agency
workers (HP 2009). The HP manager also found workers were often very resistant to
wearing a lot of personal protection equipment (PPE) because it slows them down. The
manager also found instances of safeguard switches turned off in order to move faster so
that workers receive more credit for increased productivity. Though the HP manager was
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encouraged by the design and use of new equipment that do not allow safeguard switches to
be disabled and for more automation, it is not clear however whether these new equipments
are used by smaller suppliers in developing countries.
While it is not apparent whether HP intends to address these deeper issues, what is
clear from its GCRs and interview with the HP manager is the tremendous amount of work
that goes into improving the implementation process and tools of its SER programme. Its
efforts also parallel changes and shifts in the CSR community over supply chain
governance. The CSR community itself has continued to grapple over the supply chain
governance model. Recently, there had been discussions within the community to go beyond
the audit and monitoring approach (BSR 2007). This idea came out of frustration with the
lack of real changes and sustainability improvements being made in the apparel, footwear,
and toy industries despite many years of auditing (HP personal interview 2008). Some have
referred to monitoring as ‘adversarial’ or ‘bullying’ and signals distrust on the part of the
monitoring customer, which can erode cooperative relationships and trust with suppliers
(Boyd et al. 2007). HP has itself realised factory audits held over the past decade did not
lead to sustained improvement (HP 2005). However, HP has not completely given up on the
audit. In its latest GCR, it announced one of its future goals was to introduce ‘super codes’
from the Global Social Compliance Program, which has a major audit component to it.
Further, the EICC, which is envisioned to be the key governance tool for the industry, relies
on the audit for its legitimacy.
Part of the ‘beyond monitoring’ idea involves worker ownership and empowerment
over themselves. It also includes governments, particularly in developing countries, playing
a greater role and being held accountable over worker conditions (HP personal interview
2008). More recently HP has begun testing a post-monitoring approach to supply chain
governance. In China, HP worked with local NGOs to train and teach workers about their
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rights in hopes of relying on workers themselves to bring about improvements in the
workplace rather than external monitors. However, it is unclear whether involving workers
in self regulatory governance preoccupied with documentation heavy processes and a lack
of knowledge of (long term) health risks can bring about real changes.
Despite these challenges and questions, HP is still lauded for having a strong and
robust supply chain governance programme in comparison to other firms. HP receives
considerable recognition for its work by various business organisations, universities such as
Harvard, the Massachusetts Institute of Technology and Stanford, and respected scholars
like Professor John Ruggie.
8. Conclusion
The objective of this chapter was to get into HP’s ‘world’ of supplier governance.
The first half of the chapter discussed in detail the various mechanisms HP uses to
implement its social and environmental governance programme with its first tier suppliers
and the various implementation tools it uses to bring about compliance. From a GVC
perspective and more specifically modular governance relationship perspective, the three
different criteria of knowledge transaction complexity, their codifiability, and supplier
capability to meet lead firm requirements does not provide the full picture of the dynamics
surrounding the governance processes between Hewlett Packard and its first tier suppliers.
However, where the modular governance relationship framework does help explain
governance relations is in the greater confidence HP placed in the ability of some large first
tier suppliers especially highly capable contract manufacturers like Flextronics to govern
second tier suppliers down the GPN. HP has also targeted contract manufacturers and other
large first tier suppliers in training and capacity building efforts to help ensure governance
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activities such as the EICC are pushed down the GPN. A collaborative spirit between HP
and large first tier suppliers was suggested by the HP manager. Supplier contract
termination over violations of environmental, health and safety standards by HP also
considered a last resort suggests the importance of maintaining supplier relationships. HP
instead preferred to work with its suppliers to correct violations. However because HP only
forms governance relationships with its first tier suppliers, second and lower tier suppliers
are left out of the HP led governance practices.
A second aspect of the GVC framework that partially applies to the HP story is the
increasing use of metrics (or codes) to communicate environmental, health and safety
governance measures undertaken by suppliers. While this is characteristic of the governance
processes between lead firms and first tier suppliers, it does not reveal the quality or efficacy
of these mechanisms. For HP, the outcomes from the use of audits and scorecards may not
have necessarily resulted in significant improvements or changes amongst its supplier base.
This was seen with audit results revealing similar types of concerns and violations, for
example over health and safety, over the past several years.
While these findings point to the relative importance of supplier capability and
codification in bringing about a modular type of governance relationship where some degree
of trust and collaboration characterise the inter-firm relationships between HP and first tier
suppliers, there is more to the picture.
A wider picture, using the GPN framework, helps explain in particular some of the
dynamics and challenges of supplier governance activities undertaken by Hewlett Packard.
First, external non-firm actors have played an important role in influencing Hewlett
Packard’s governance processes. Pressures from external actors were catalysts and
incentives for HP’s increased efforts and resources for supplier governance such as the
EICC. As will be shown in subsequent chapters, such pressure from external actors is
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largely missing when it comes to first tier suppliers and may help explain some of the
difficulties faced with driving governance down the GPN. HP has also adopted a strategy of
increasing collaborations and supplier capacity building efforts with civil society
organisations and industry groups. These efforts have contributed to hoisting HP as a CSR
leader in the electronics industry.
Second, the host country context was a factor that was raised by the HP manager in
the types of governance challenges it faced with suppliers located in Malaysia. The HP
manager highlighted cultural differences and government regulations and policies that
created a situation in which Malaysia was considered one of the more difficult locations to
govern suppliers. The affects Malaysian regulation and regulatory enforcement on health
and safety have on governance practices within the GPN will be discussed further in
Chapter eight.
Third, the use of different concepts of power provides a more complex picture and
understanding of the dynamics and processes of supplier governance in a GPN. The inter-
firm relationships are characterised by HP having power over its first tier suppliers. This
understanding of power is implicit in the GVC framework where lead firms are considered
to hold more power over its suppliers by being able to dictate who and how they participate
in the supply chain. When it comes to environmental, health and safety standards, HP has
put aside sufficient resources to establish and enforce a robust supplier governance
programme on its suppliers that is upheld through contractual obligations. Thus, in this
dimension of the GPN, i.e. inter-firm governance relationships between HP and its first tier
suppliers, consists of a “winner-loser” type power relationship where HP dictates the health
and safety standards and conditions and governance mechanisms and its suppliers are to
ultimately follow them. While the exercise of this power by HP is seen through its
monitoring and auditing of supplier compliance it is tempered by HP’s preference to work
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with non-compliant suppliers rather than terminate them. However another concept of
power helps further our understanding of the practical approaches chosen for supplier
governance in a GPN.
The second concept of power that applies here is that of governmentality. This
chapter had a dedicated discussion on the use of audits and scorecards (metrics) as forms of
governmentality techniques that allows HP to govern its suppliers at a distance. While such
techniques or governance mechanisms are critical for managing GPNs as they make it more
feasible to communicate health and safety conditions across borders between suppliers and
HP there are also weaknesses in their outcomes. Whether audits and scorecards can truly
reveal the health and safety conditions of supplier manufacturing sites is unclear. Even the
CSR community has questioned whether the audit and monitoring are the most effective
governance tools in bringing about improvements down the GPN. This weakness becomes
clearer from the discussion on the governance practices of first tier suppliers in the next
chapter. Despite these questions and concerns, however, the audit and scorecards continues
to be key features in the governance tools used by HP. The continued use of such calculative
techniques exhibits the power of such governmentality techniques which lies in their being
‘taken-for-granted’ and ‘common sense’ approach to proper governance tools by those
conducting them (Power 1997). The next chapter examines in more detail governmentality
from an intra-firm perspective amongst first tier suppliers.
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CHAPTER 6
FIRST TIER SUPPLIERS TO HEWLETT PACKARD:
HEALTH AND SAFETY GOVERNANCE IN PENANG
1. Introduction
This chapter discusses the experiences of first tier suppliers to HP complying with
private standards and codes on health and safety. The aim of the chapter is to assess to what
extent requirements set down by HP are being implemented in the supplier sites located in
Penang, Malaysia. It also aims to assess to what extent first tier suppliers are governing their
(second tier) suppliers. Thus, the chapter follows from Chapter 5 to fill in part of the second
half of the story of governing health and safety down a GPN – that of first tier suppliers and
the various tensions and challenges that go along with the complexity of GPN governance.
The experiences of a large HP supplier in its headquarter location in Western Europe
(CSHQ) is also discussed in this chapter. The experiences at a headquarter office provides a
very different and contrasting perspective from manufacturing sites in a developing country
location like Penang. The headquarter office of a supplier typically has a direct relationship
with customer firms with regards to contracts and any governance requirements such as
codes and standard. It is also the headquarter office that transmits information on the various
customer and internal governance requirements to the supplier manufacturing sites in other
locations. The research findings are based on a lengthy interview with the Corporate
Responsibility Director at CSHQ, which gave a close look at the internal processes and
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challenges that a leading supplier faces with managing and organising a governance
programme itself and its suppliers.
The remainder of the chapter examines the experiences of five suppliers – all of
which were MNCs - at their manufacturing sites in Penang. The research findings reported
on are based on lengthy interviews with directors and safety and health managers
responsible for implementing governance requirements. The data, particularly from the
manufacturing sites in Penang, reveal the important role these actors play in how the tasks
and messages of governance received from headquarters are confronted with and
implemented.
The chapter proceeds as follows. Section two discusses CSHQ, the first tier supplier
to HP interviewed at the headquarters location. Section three describes the findings of the
five first tier suppliers in Malaysia, which are identified as CM, CS1, CS2, CS3 and CS4.
Sections two and three aim to get down the details of the governance programmes,
implementation processes, and experiences of each of the first tier suppliers interviewed. As
the discussion progresses, a few similarities and patterns with regards to governance tools
and techniques, cultural factors, EICC implementation, and engagement in second tier
supplier governance emerge amongst the first tier suppliers. These similarities will be
further discussed in section four – an important section that provides a contextualised
analysis of the key points that emerged from the different experiences of the suppliers.
An important aspect of the complexity in undertaking GPN governance on EHS is
the relaying of instructions, messages, and results across borders. The safety and health
officers responsible for implementing health and safety governance at the manufacturing
sites in Penang were in regular contact with their headquarters in order to relay messages of
compliance back to headquarters. This required the regular use of data collection, reporting,
and audits. The implications on the exercise of power and governance of these activities and
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amongst safety and health officers are taken up in section four using a governmentality
perspective. Section four also discusses the worker behaviour aspects of health and safety
governance and structural constraints of implementing governance requirements, in
particular the EICC, internally and with their (second tier) suppliers. Section five concludes
the chapter and points to the need to further complete this second half of the story with the
discussion provided on second tier suppliers in Chapter 7.
2. Headquarter perspective of a first tier supplier
CSHQ was established in 1987 with a merger of two semiconductor companies in
Western Europe. It is one of the largest multinational semiconductor manufacturers in the
world. It was also one of the top 100 key suppliers to HP in 2008. In 2010 it posted net
revenues of 10.35 billion USD. Its corporate headquarters is in Western Europe and has
regional headquarters in the US, China, and Japan. CSHQ has 53,000 employees, fourteen
manufacturing sites and fifty five research and design centres in ten countries. It is traded in
the stock markets of the United States, France, and Italy. Its wafer fabrication plants are
located in Italy, France and Singapore. Assembly, test and packaging facilities are located in
Malaysia (not in the state of Penang), China, Malta, Morocco, the Philippines, and
Singapore. In 2008 the Corporate Responsibility (CR) Director reported the firm had around
12,000 corporate suppliers (CSHQ Corporate Responsibility Director, personal interview,
2008). In 2010, it reported having 9,000 suppliers and 100 subcontractors (website accessed
1 April 2010).
The experiences of the headquarters office of CSHQ with implementing customer
requirements of codes and standards provide a perspective very different from that of the
manufacturing sites in Penang. This unique perspective is presented here through the
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experiences of the CR Director at CSHQ. The CR Director who holds a PhD in French
literature joined CSHQ in 2004 to widen its CSR activities, which was focused on the
environment, to include human rights, labour, and ethics. The CR Director was hired at a
time of increasing concerns, questions, and pressure from investors and customers on CSR.
CSHQ supplies to the major branded firms in the industry, which themselves faced pressure
from nongovernmental organisations and investors on these issues. This pressure was said to
have filtered down to CSHQ. According to the CR Director, the firm responded to its
stakeholders concerns by hiring
“somebody outside [of the industry] which is almost unheard of in [CSHQ]. It was
very rare to have somebody come in from outside because it was thought that they
didn’t really know what they were dealing with inside. So that it was a point where
the world had advanced very rapidly and questions from investors were becoming
increasingly [not only about the environment but also human rights, labour, and
ethics]. [The firm] felt you know we have to do something but I’m not quite sure
what so when I came on board that’s exactly what we were trying to figure out to
sort of define a strategy and set a framework. There was this moment where the
pressure was becoming, even for a company like ours which is a little bit inside the
supply chain, strong enough that you need to put more resource on it...” (emphasis
added) (CSHQ CR Director, personal interview, 1 July 2008, Geneva).
According to the CR Director, the firm was “not really being bombarded with
requirements. It’s filtered down in different ways” though questions and pressure was felt
from customer requirements and especially investors. In the past few years, there had been a
great emphasis on supply chain management. According to the CR Director, another key
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driver behind its environmental and social governance efforts was the previous CEO who
was said to be “incredibly passionate about sustainability... and that gave sort of a rich base
for the whole culture to develop”. CSHQ was one of the first firms in the industry to have
all of its manufacturing sites ISO 14001 and OHSAS 18001 certified.
When the CR Director joined the firm in 2004, her task was to define a strategy and
framework to implement management systems for the various CSR areas. It included
improving its labour and ethics management systems to be on a par with the firm’s
environmental, health and safety (EHS) and quality management systems. These efforts
gained more impetus when CSHQ joined the EICC in 2005. The CR Director was also
elected as a member of its board in 2007 and remained so until 2011. Equally important for
the CR Director was staying connected to actors and activities on CSR outside the firm. The
CR Director described how her job responsibilities as consisting of two dimensions: “one is
to understand the outside world, what’s happening and the implications of trends and
changes for the company and also to communicate to the outside world” (CSHQ CR
Director, personal interview, 1 July 2008, Geneva).
From 2005 to 2009, the number of customer requirements received by CSHQ
increased by 87% (from 165 in 2005 to 252 in 2009). The firm attributed part of this
increased interest in CSR issues to the economic crisis and market pressure. It also pointed
to an increasing trend in attention paid to CSR issues in the electronics industry GPN (CSR
Report, 2009).
A. Internal environmental, health and safety governance programme
The CR Director was part of a four person Corporate Responsibility team. The
headquarter office also had a small group that handled the environment and an EHS Steering
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Committee. CSHQ in its annual CSR reports provides a tremendous amount of detail into its
internal framework on governance. It incorporates health and safety into its “Total Quality
and Environment Management” and ‘business culture’ (CSR Report 2009). CSHQ has had
its own corporate code of conduct and health and safety policy since 2005. Its health and
safety policies, strategies and objectives are based on OHSAS 18001. There are three main
sets of requirements for implementing the code of conduct and policies. First, manufacturing
sites must comply with the EHS regulations of the countries in which they are located in and
any relevant international standards. Second, a risk management approach must be adopted
for new chemicals and gases. The risk management programme is to be based on
precautionary principles with goals to reduce and control hazards in the workplace and
eliminate carcinogenic, mutagenic, and reproductive toxic substances. Additional goals
included reducing by ten percent annually the overall number of work-related injuries and
illnesses, injuries and illness that result in either days away from work, job transfers or
restrictions, and total number of days away from work. Third, suppliers and subcontractors
are to be encouraged to obtain ISO 14001 or the European Union Eco-Management and
Audit Scheme (EMAS) and the OHSAS 18001 certification and comply with the EICC
(CSHQ CR Report 2006, 2007).
CSHQ monitors its own performance on health and safety internally on a quarterly
basis. It does so by using the United States Occupational Safety and Health Administration
model for recording and notifying health and safety incidences and investigating work-
related injuries and illnesses. The main indicators for assessing its performance is the
number of recordable cases per 100 employees and number of calendar days lost due to
injury or illness per 100 employees. Its progress is measured against a 1994 baseline (CSHQ
EHS brochure).
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There have also been efforts to widen the understanding of safeguarding health and
safety at the firm. A company-wide health plan was put in place in 2006 that provided
employees with medical check-ups, blood tests, mammograms, immunisations, and prostate
and colorectal cancer screenings (among others). Some of the manufacturing sites provided
screenings and tests to workers that were not normally available at their nationally provided
health services. This programme was put in place to “go beyond the traditional concept of
safety” (CSR Report 2007).
In 2008 CSHQ began using new self assessment and online reporting tools. The
assessment tool uses over a dozen parameters, such as leadership, communication, and risk
assessment to monitor and illustrate EHS performance. These new tools increased its ability
to undertake calculations of performance indices and internal benchmarking. CSHQ also
benchmarked its performance against other firms in the electronics industry. On EHS, Intel
was said to be the benchmark (CSHQ CR Director, personal interview, 2008).
The CR team at the headquarter office is said to hold regular meetings with
manufacturing sites to monitor their performance. Audits of manufacturing sites were also
conducted every two years (CSHQ CR Director, personal interview, 2008). Manufacturing
sites are ISO 14001 and OHSAS 18001 certified and EMAS validated. They also have
chemical management teams and health and safety steering committees made up of
managers from different divisions. CSHQ has boasted no fatalities since 2004. The number
of workstations that had been previously identified as “significant risk” with regards to
chemicals was reduced to zero in 2007 (CSR Report, 2009). According to the CR Director,
only a small number of minor non conformances are normally found at manufacturing sites
(CSHQ Corporate Responsibility Director, personal interview, 2008).
Reporting of chemical usage, however, was done only for sites located in developed
countries with front-end clean room fabrication. In these sites, chemical usage was
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monitored with detailed measurements. One site had over 900 measuring points and 155
sensors that produced over 5,000 data points per day on forty different chemicals. While the
annual CSR reports highlighted the issue of health and safety, the discussion focused more
on physical harm than illness from exposure to hazardous chemicals. For example, at
manufacturing sites located in China and Malaysia, site manager reports focused on safety
mechanisms in machinery that prevented injury to fingers. Even though manufacturing sites
in developing countries are back-end factories that undertake assembly and testing of chips
and modules and have less chemical usage than front-end fabrication factories which
undertake wafer fabrication, there are still chemicals such as solvents and cleaners used in
assembly activities that involve hazardous substances like trichloroethylene, isopropyl
alcohol, acetone, Freon, epoxy, acids and flux whose exposure to workers can be harmful
(LaDou 2006).
In recent years, there has been more attention paid to behaviours and attitudes in the
workplace with regards to health and safety conditions. In the CSR Annual Reports for
2006, 2007, and 2009, all the manufacturing sites (three in developing countries and three in
developed countries) highlighted behavioural and cultural aspects of health and safety
improvements. A strong emphasis on ‘personal responsibility’ was also made by all the
developing country site managers featured in the CSR reports. Site managers noted that the
understanding of health and safety obligations by workers was to be ‘common sense’. In a
site in Malaysia, for example, a ‘safe working culture’ was said to be a ‘required attitude’ by
workers. CSHQ set objectives to change employee mindsets with change in attitudes to be
achieved through communication, training, and participatory approaches such as signing
declarations upon training completion to show employee commitment to health and safety
and understanding. Employees were also welcomed to participate in a programme where
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they could make suggestions for improving safety and health procedures and conditions at
their workplace (CSR Reports 2006, 2007, 2009).
A programme called Behavioural Risk Improvement (BRI) was launched in
European manufacturing sites in 2005. The programme involved a review of critical
behaviours that were attributed to the majority of injuries or other work time ‘loss areas’,
identification of safe behaviours, and training. Its goal was to encourage safe behaviours by
‘allowing’ and ‘encouraging’ employees to observe the behaviour of their colleagues on the
job. The ‘observation process’ was to facilitate the identification of ‘unsafe’ or
‘inappropriate’ behaviour and lead to preventative and corrective actions. Unions were also
said to be involved in these programmes. The BRI is reported to have brought about positive
results and CSHQ had been requested to share the programme with other firms (Corporate
Governance report 2006, 2008).
B. Challenges with implementing the Electronic Industry Code of Conduct
internally and with suppliers
CSHQ joined the EICC in 2005. The main driver for adopting the code was the
prospect of replacing dozens of customer requirements annually, which required different
paperwork specifications, questionnaires, and audits, with one industry wide code.
According to the CR Director, the firm had seen a major change in its customer
requirements since becoming an EICC member. More customer requirements became linked
to the EICC and its Self Assessment Questionnaire (SAQ) increasingly replaced company
specific questionnaires (CR Director, personal interview, 2008). In 2009, more than a third
of its customer requirements were based on the EICC (CSR Annual Report, 2009).
Customers like HP and Phillips have also pushed CSHQ to not only improve its compliance
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with the industry code but also implement it with its own (second tier) suppliers. According
to the CR Director, customers have even threatened removing their business contracts if no
improvements were made.
While the CR Director welcomed the EICC there was, however, a ‘major challenge’
embedding all aspects of corporate responsibility into the company culture. A considerable
amount of time was spent changing internal processes and structures, which included
improving management systems and increasing management consistency over human rights
and ethics to bring the firm in compliance with the code. CSHQ also had to ensure its
manufacturing sites were in compliance with the EICC before working to reach its own
(second tier) suppliers with the code. Manufacturing sites were said to have faced a greater
challenge with compliance because of immense pressure they received from customers for
production quantities and regular audits on quality. Pressure on the manufacturing sites to
implement the EICC was applied more by the CSHQ headquarter office however than
customers. Despite these challenges, CSHQ was one of the first EICC members to complete
the SAQ process with its manufacturing sites and to have conducted audits on some of them.
In 2009, 82% of its suppliers and close to all of its subcontractors were either EMAS
or ISO 14001 certified. The level of OHSAS 18001 certifications was reported to be above
80% for subcontractors and 33% for suppliers (CSR Report 2009). However, the situation
facing EICC compliance amongst its suppliers presented a less successful picture.
The CR Department at the headquarter office was responsible for implementing the
EICC with suppliers. CSHQ had three separate ‘organisations’ internally to handle its
suppliers, back end subcontractors, and front end subcontractors. Each organisation was said
to have its own chain of commands, resources, priorities, and speed of working. Having to
orient each of them with the EICC supplier engagement programme required significant
effort by CSHQ according to the CR Director. For example, the code had to be integrated
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into supplier requirements, procurement personnel (which are responsible for suppliers) had
to be trained on communicating the code and expectations to suppliers, and internal
capability to evaluate supplier performances had to be built. The industry wide code was
incorporated into the Supplier Performance Evaluation tool for back-end subcontractors and
the Score Card tool for front-end subcontractors.
CSHQ had developed a plan to deploy the EICC to its corporate suppliers. Executing
it, however, was extremely slow. The strategy was to prioritise subcontractors and corporate
managed suppliers that represented 80% of billings (CSHQ Corporate Responsibility
Director, personal interview, 2008). It was reported for the first time in its CSR Annual
Report 2009 that only 30 suppliers were introduced to the EICC and only 27 suppliers had
completed the EICC SAQ. No supplier audits had been conducted and two EICC audits
planned for 2009 were cancelled due to resource constraints (CSR Annual Report 2009).
Reaching local suppliers at manufacturing sites has also been slow. In 2008, the CR
Director reported its manufacturing sites had requested headquarter assistance for deploying
the EICC tools to local suppliers. The CR Director felt that while manufacturing sites may
utilise tools like the self-assessment questionnaire (SAQ) on suppliers it was doubtful
whether they would have the resources to review the results (CSHQ Corporate
Responsibility Director, personal interview, 2008).
The CR Director noted that while it was committed to the code when the firm joined
the EICC it could not, however, be held responsible for the performance of all of its
suppliers and subcontractors. Part of the challenge CSHQ faced with implementing the
EICC is due to its large number of suppliers. In 2008, the firm had around 12,000 suppliers,
which was a supply base twenty times the size of HP. Realistically, given the sheer size of
the supplier base, the CR Director felt that not all suppliers would be reached with the
EICC.
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Much of the slow EICC implementation problems were blamed on resource
constraints. While the EICC tools, namely the questionnaire and self-assessment
mechanism, removed the burden of creating such tools internally, CSHQ lacked resources
for internal training, and engaging with and responding to suppliers on the code. An
example of the dire state of resources was the lack of an internal plan developed to address
supplier non-compliances (CSHQ Corporate Responsibility Director, personal interview,
2008).
The low amount of resources afforded for governance activities by management was
exemplified in the challenge the CR Director faced with hiring an additional auditor to
assess EICC compliance of suppliers. Prior to 2008, CSHQ had one auditor for quality who
struggled to include EICC compliance audits in his duties. In order to obtain a second
auditor, the CR Director had to engage in a substantial amount of persuading and
campaigning of top management. This involved requesting customers to speak to the Vice
President of Purchasing and submit letters to a reluctant management until a second auditor
was finally hired in May 2008. The CR Director pointed to this incident as part of the “hard
work” of governing suppliers.
The CR Director emphasised the importance in the resource and capacity differences
between first tier suppliers and brand firms. One of the “biggest constraints” is “big brands
with the big money do not understand the constraints of the smaller supplier”. While HP has
been able to engage a substantial amount of its suppliers with the EICC tools, CSHQ was
only in the early stages of engaging its suppliers with the EICC process in 2009 – four years
after joining the industry code. The CR Director noted that brands invest a lot of resources
into their CSR activities because their reputations and brand values are directly affected.
This was not the case, however, for first tier suppliers that are generally unknown to the
public and are not targeted by CSO campaigns. Unlike HP, CSHQ does not have a separate
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department dedicated to stakeholder relations. Its executive management does not feel the
pressure nor see the need to channel resources into corporate governance activities. As a
result, the firm “struggle(s) to have the resources to have a really comprehensive program”
on supplier governance despite being a core EICC member (CSHQ Corporate
Responsibility Director, personal interview, 2008). According to the CR Director, 90% of its
corporate responsibility problems are due to limited resources.
3. Five first tier suppliers and their manufacturing sites in Penang
A. Profile of the first tier supplier firms
CM is the second largest contract manufacturer in the world and one of the two
largest contract manufacturers to HP. It was founded in the United States (US) in 1969 and
is currently incorporated in Singapore. It has over 200,000 employees located in thirty
countries and around 20,000 suppliers (CM website 2011). Its Penang manufacturing site
works closely with the HP regional office located in Singapore. It is engaged in the
production of printers and hard disk drives for HP (HP Global Manager, personal interview,
2008). PCBs are important components used in the assembly of these products (CM EHS
Officer, personal interview, 2008, Penang).
CS1 was incorporated in the US in 1968. It is a very large multinational corporation
that makes semiconductor chips, microprocessors and other connectivity products. The firm
is a dominant ‘platform leader’ within the personal computer industry (Sturgeon and
Kawakami 2010). It has around 80,000 employees with over 300 sites in more than 50
countries. It has over 9,000 suppliers in over 100 countries. CM is included in a list of top
75 suppliers to CS1 (Annual Report 2010). In Malaysia, CS1 has four factory sites
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(Assembly and Testing facilities) that undertake component assembly and testing (CS1 CSR
Annual Report 2009). Its Penang site alone has 6,000 employees. HP is its largest customer.
CS1 uses PCBs in all of its processes at its Penang site, which are purchased from suppliers
(CS1 EHS Officer, personal interview, 28 August 2008, Penang). CS1 has a long history in
Penang. It was one of the earliest American electronics firms to open its first offshore
location in the state in 1971.
CS2 was established in the US in 1969. It is a smaller global semiconductor
company which had close to 15,000 employees globally and in 2008 had around 1,500
employees in Penang. HP is one its top two customers. It has developing country
manufacturing locations in Malaysia, China and Singapore, which are assembly, testing and
packaging sites. CS2 also opened its first offshore location in Penang in 1972. In Penang,
the manufacturing site buys, assembles, and tests microprocessors (CS2 website, accessed
28 February 2011). Suppliers for CS2 are on an approved supplier list designated by its
customers. Local suppliers are used only for spare parts and chemicals (CS2, personal
interview, 25 August 2008, Penang).
CS3 is a supplier of electronic subsystems to brand firms. It was established in the
US in 1988 and its Penang site opened in 1998. It is also incorporated in the US and has
over 14,500 employees. It has manufacturing sites in Malaysia, Ireland, China and Brazil. In
its Penang site it had a workforce of 450 in 2008 (CS3 Website). In Penang, the
manufacturing site is involved in computer based products. They include printed circuit
board assembly and designing, manufacturing, and testing memory and flash modules. They
are producing only for foreign markets like the EU and the US and do not engage in small
quantity contracts (CS3 Safety and Health Officer, personal interview, 2008, Penang).
CS4 originated in Malaysia as a small and medium sized enterprise in 1996 and was
acquired in 2002 by a multinational electronics manufacturing services provider
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headquartered in Singapore. The Chairman and CEO and other executives of CS4 used to be
senior employees of HP. In 2009, it was ranked the seventh Electronics Manufacturing
Services provider based on revenue in the world (Sturgeon and Kawakami 2010). It has
forty companies throughout Malaysia, China, Singapore, the US and the European Union. It
has over 14,000 employees globally and had 1,700 employees in Penang in 2008. Its
manufacturing activities include printed circuit board assembly, sub-assembly of fibre
optics, and testing services. In Penang, it is a supplier of components to HP printers (CS4
website; CS4 EHS Consultation Officer, personal interview, 2 September 2008, Penang;
Yeung 2008).
Table 6.1. First tier supplier profiles
Country incorporated
Firm size (employees)
Number of suppliers
Manufacturing activities in Penang
Relationship to HP
CSHQ Switzerland 53,000 12,000 in
2008; and 9,100 in 2010
Semiconductor
assembly, test and packaging (in Malaysia
but not in Penang)
Large first tier
supplier
CM USA 200,000 20,000 in 2009
Printers and hard disk drive assembly
One of two largest
contract manufacturers
CS1 USA 80,000 Over 9,000 Assembly and test
facility for semiconductors and
microprocessors
HP is largest
customer
CS2 USA 15,000 overall (1,500 in
Penang)
N/A Assembly, testing and packaging of
semiconductors
HP is top two largest
customers
CS3 USA 1,100 (450 in Penang)
N/A printed circuit board assembly; designing,
manufacturing and testing memory
modules and boards,
liquid-crystal displays and flash modules and
boards
Top 100 first tier supplier
CS4 Singapore 14,000 (1,700
in Penang)
N/A printed circuit board
assembly, sub-assembly
of fibre optics and testing services;
components supplier to HP printers
Top 100 first
tier supplier;
also supplier & partner to
several HP suppliers
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B. Governing health and safety by CM
At the Penang manufacturing site of CM, a highly qualified Environmental, Health
and Safety (EHS) Officer was responsible for legal compliance, local requirements,
corporate requirements and customer requirements over EHS. The EHS Officer held a
Master degree in Occupational, Safety and Health and was employed at CM for ten years.
Customer requirements on environmental and social standards and codes are
received by the CM headquarters not the Penang site. Before establishing a contract,
customer firms are said to send a survey list of their requirements for CM to assess whether
it can comply with them. These pre-award surveys from customers are received by the
business department at the CM headquarters which distributes and communicates the
requirements to different departments. Customer requirements included lists of banned
substances and compliance with the EU Directives RoHS and WEEE and more recently
REACH. The EHS Officer also noted ISO 14001 and the EICC as customer requirements
though it was not clear whether the Penang site was in compliance with the latter.
Customers were said to manage the activities of CM closely (CM EHS Officer, personal
interview, 23 August 2008, Penang).
In order to meet customer requirements and generally engage in governance
activities, CM has a corporate code for business conduct which covers labour,
environmental health and safety, ethics and governance, management systems, and
community involvement. Environmental health and safety standards at CM require
evaluating workplace hazards and risks, implementing administrative and engineering
controls and industrial hygiene programmes, monitoring employee health, evaluating
alternative technologies and materials, and educating and training employees. The goal at
CM is to have a strong safety culture with zero tolerance for accidents (CM CSR Report
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2010). According to the EHS Officer in Penang, there are eighteen corporate EHS standards
that must be complied with by all manufacturing sites. Compliance of these standards must
be updated and reported on a monthly basis. There are also twelve safety standards based on
the job duties of a worker. Extensive in-house audits are conducted by the EHS officer.
The Penang site complies with several national regulations. Those specific to
chemicals involve requirements on waste treatment and disposal, ensuring suppliers label
chemicals and provide relevant information, conducting chemical health risk assessment,
and receiving approval for chemical use based on engineering and administrative controls.
The EHS officer is also responsible for implementing the Malaysian legislation on health
and safety.
According to the EHS officer, the CM Penang site does not engage in
subcontracting. It is prohibited by its customer contracts due to the risks of intellectual
property leakage. PCBs used in product assembly at CM are purchased from vendors
designated by customers. These do not include local vendors. The only local vendors that
seemed to be used by the CM Penang site were for waste management.
CM required its suppliers to be ISO 14001 certified. According to the EHS Officer,
ISO 14001 was to ensure a minimum guarantee that some level of environmental conditions
were adhered to by its suppliers. It was also a requirement to bid for CM tenders.
Component suppliers to CM are also sent a list of banned substances. The requirements are
communicated to suppliers by the purchasing and material department. Those suppliers to
the Penang site considered environmentally hazardous were audited. According to the EHS
officer, suppliers or vendors found non-compliant of its contract requirements would be
terminated. This is because CM ensures its suppliers understand the standards they must
comply with at the time of signing contracts and therefore non-compliance would be done
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knowingly noted the EHS officer. Suppliers have been terminated by the Penang site in the
past.
Employees at the Penang site are trained on EHS concepts, goals and regulations by
the EHS Officer. The EHS officer provides production line workers with a simplified
version of a training presentation. The officer explained the reason for doing so: “They
don’t need to know all these in detail... they should know what is their right. I will tell my
employees if you find that your working environment is not safe in terms of ergonomics, in
terms of health, in terms of safety you have every right to stop your work and walk in to this
office and say I have this problem, I cannot work” (CM EHS Officer, 23 August 2008,
Penang). The EHS Officer provides workers with a complaint box, email address and online
complaint forums. He also sits in the production line area one hour a week for employees to
walk up to him and make a complaint. While many complaints were made in his early years
at CM, more recently the EHS Officer was said to have received only one to two complaints
a month. Examples of complaints were of pregnant women who “have their own problems”
and “certain people [that] are allergic to certain chemicals” who are then relocated to other
activities. According to the EHS Officer, his corporate social responsibilities include
providing a “perfect communication system for the employee”. The concerns over
employees and maintaining a safe environment “comes from the top” and the “corporate
image is very important to us”. These sorts of concerns, the officer finds, is an attribute of
CM being an American firm. Contracted workers are trained by a training programme
provided by the National Institute of Occupational Safety and Health.
CM is a founding member of the EICC. However, and surprisingly, the EICC did not
feature in the governance requirements at the Penang site in 2008. Yet since 2008 CM has
increased its discourse on the EICC in its CSR report and website. Indeed, there has been a
substantial increase in governance activities by CM since my interview in 2008. CM
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released its first corporate social and environmental responsibility report in 2010. The report
provided a substantially different picture of the governance programme and activities of CM
from previous years. Its CSR report also sets out future plans for improving its governance
programme. They include establishing systems, processes and metrics, building
competencies and skills, formalising organisation structures and committees, building
company culture and establishing an industry leadership position in CSR.
Progress in implementing the EICC internally and with suppliers, however, has been
slow. For example, a five year programme was launched to train all employees on the code
of conduct only in 2010. According to the CM website in 2011, manufacturing sites were
expected to comply with the code. Implementation of the EICC involved educating
manufacturing site leaders, disseminating information to employees, conducting monthly
site-based assessments and action plans, audits and issuing certifications of high audit
scores. Site assessments are to be conducted by the Corporate Social and Environmental
Responsibility regional lead person who will provide scores and targets for sites annually.
All CM manufacturing sites are to meet high audit scores and be certified by 2011. Sites are
to have compliance management committees and management systems. Scorecards and self
assessment tools are to be used to review, evaluate and improve performance and fulfil
corrective action measures (CSR Report 2010).
Despite stating that all suppliers are expected to comply with the EICC, enforcement
of the EICC on suppliers, however, has been weak and slow. In 2008, CM reported
assessing less than 2% of its suppliers against the code. It was only in 2009 that suppliers
were requested to complete the EICC Self Assessment Questionnaire. In 2009, CM worked
with less than 1% of its suppliers on corrective action plans, all of which were focused on
health and safety.
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C. Governing health and safety by CS1
The CS1 Penang site has had the same Senior EHS engineer (from now on ‘EHS
engineer’) since 1996. The responsibility of the EHS engineer is for overall safety of the
site. The engineer is part of an EHS team that included an environmental engineer, a safety
engineer, and occupational nurses. The EHS engineer holds a Master in Occupational,
Safety and Health degree and was trained at the headquarters in the US upon receiving his
position.
The firm is ISO 14001 certified and the Penang site became OHSAS 18001 certified
in 2009. CS1 has a code of conduct and an environmental, health and safety policy.
Corporate standards on OSH are based on OHSAS 18001 and the ILO OSH MS 1772.
The duties of the EHS engineer are to execute the management system and standard
operation procedures (SOPs) that identify risks and mitigation activities learned at
headquarters. A substantial amount of the safety governance activities involved paperwork.
CS1 measures its safety performance through lost work day and injury rates. In 2006 the
EHS engineer began providing daily reports to the Safety Manager at headquarters as part of
the internal safety management system. The reports included information on man-hours,
number of incidents, among others. The data was received from subordinates at the site,
compiled and sent to headquarters on an online data collection system. Information from the
reports were plotted on graphs for comparison amongst other sites worldwide. Serious
incidences were reported to the District Manager who subsequently reported them to
headquarters. There was also daily communication with counterparts at headquarters via
emails and instant messaging. All the Assembly and Testing facilities, like the Penang site,
shared with each other their “lessons learned” from incidences through an intranet site. The
EHS engineer was also sent to well performing sites every one to two months for more
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learning. There were also annual face to face conferences among health and safety personnel
from all the Assembly and Testing facilities (EHS engineer, personal interview, 2008).
According to the EHS engineer, each manufacturing site conducted its own internal
self-audits on its environment, health and safety performances. Audits were conducted to
assess regulatory compliance, management systems and identified problems. Some sites
received additional audits from the corporate headquarter. A vice president from CS1
headquarters was also said to visit various sites with global EHS personnel to discuss and
verify safety action plans. The Penang site was not audited by external third party auditor
but only from corporate auditors on an annual basis. Customers did not inspect or audit the
health and safety conditions at the Penang site, though there were customer audits on
quality.
According to the EHS Engineer, since the early 2000s there have only been around
five to six recordable health and safety cases and incidences in total. The EHS engineer
found this to be a very good performance stating that some companies have this number of
incidences in one month (CS1 Senior EHS Engineer, personal interview, 2008, Penang).
Workers were trained on EHS by a qualified employee trained by NIOSH. The
training program was modelled after one established at headquarters. Training was specified
according to the type of position held by an employee, e.g. ‘operator’, ‘supervisor’,
‘manager’, etc. The compulsory EHS worker training included employee right to know of
hazards. Compared to other companies, the EHS engineer found the safety performance of
CS1 the best. When it comes to health hazards, he found the most common chemical used
was Isopropyl Alcohol for cleaning purposes. While solder boards and flux were also said to
be used, according to the EHS engineer, chemicals were not a major hazard for the site, “If
you ask me we don’t use any chemicals” (CS1 Senior EHS Engineer, personal interview, 28
August 2008, Penang). While chemicals could be corrosive they were not hazardous
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according to the EHS engineer. When asked how they make motherboards without
chemicals, the engineer stated that they used non hazardous substitutes.
Worker training was said to be effective only on some employees. Others were said
to need a “change in their mindset. They’re you know the culture change, we call it that. So
especially when you deal with Asians” (CS1 Senior EHS Engineer, 28 August 2008,
Penang). The headquarter office of CS1 conducted an internal study that concluded the
major contributing factor for incidents or injuries to be worker behaviour. The headquarter
office also has a new programme to impart a safety culture throughout the firm. Employees
are asked to complete a survey with questions focused on employee well-being at the firm.
Answers are scored and benchmarked against other technological companies annually. This
feedback is used to identify areas for improvement. There is also an assessment tool based
on core expectations of a safety culture. CS1 also shares descriptions of behaviours
exhibited in the stages of a maturing safety culture with its employees. Finally, an employee
health wellness programme encourages employees to evaluate personal health risks on a
proactive basis and improve their lifestyle. This programme was expanded outside the
United States to include developing countries such as Malaysia in 2008.
Components from suppliers such as capacitors and batteries are based on approved
lists provided by headquarters. Vendors and suppliers to CS1 must meet EHS requirements,
which are specified in contracts. These include having a safety policy, a safety guide and
programmes in place. The Penang site was said to look through the documentation before
qualifying a vendor or supplier. If the tools produced by local vendors are used only for the
local market, CS1 will only require their compliance of local regulations. It is only if the
tool is shipped to other countries when more requirements are placed on the supplier.
Many PCB suppliers to CS1 are from China and the US. The EHS engineer did not
believe Malaysian suppliers provided PCBs that were used in its products. This is because
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Malaysian suppliers were unable to meet CS1 requirements. It was noted suppliers from
China could. Some assembly work was outsourced to local companies as part of its cost
savings strategy and also when demand was too high and the site unable to cope. The
outsourced assembly work was done using CS1 equipment, which was set up at the supplier
site. The outsourced work was also managed by CS1 employees. According to the EHS
engineer contract workers were employed only for construction operations and for
production lines.
Local suppliers were used to fabricate machinery or equipment, e.g. for
measurement, piercing or scanning, and tools, e.g. conveyor, cart and trolley. These local
fabricators were producing basic machinery and not involved in high technological
processes. Suppliers were also visited by CS1 to ensure they met requirements of emergency
buttons, locks, etc. and on chemical usage. There was also a safety leadership team that
worked with suppliers to test different safety programmes.
CS1 joined the EICC in November 2004. Although the EHS engineer did not
mention the code of conduct, the EICC was said to be consistent with its internal code of
conduct and human rights principles according to its CSR reports. Like CM, the discourse
on the EICC and supplier governance was very different at the headquarter level, CSR
reports and firm website. CS1 expected its employees, suppliers, and suppliers of suppliers
to comply with the EICC. Implementing the EICC with suppliers is handled at the corporate
level through a supply chain management review committee. In line with the EICC
implementation procedures, suppliers with the highest risk profiles are targeted for EICC
assessment and audits. In 2009, CS1 analysed the risk profiles of over 500 supplier sites –
completing the first step in the EICC implementation process. Of these sites, 74 were
identified as candidates for completing the EICC self assessment questionnaire (SAQs).
While SAQ results are to be posted on the EICC’s online E-TASC database CS1 reported
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delays in supplier subscriptions to the on-line database system. From the SAQ results, only
15 were considered “high risk” and would be targeted for the shared audits as part of the
verification stage of the EICC programme. However, audits were not conducted due to
quality problems faced by the EICC shared audit process. In the end only a small number of
suppliers were fully assessed for compliance with the industry code. Fifteen suppliers
represented only 3% of the 500 supplier sites CS1 examined which turns out to be only
0.16% of its 9,000 suppliers (see Table 6.3 for a comparison of EICC implementation across
the different suppliers).
Future goals for supplier governance included continuing integration of the EICC
into supplier management processes, completing risk assessments and implementing
continuous improvement plans with top-tier suppliers. CS1 also had plans to use metrics on
various categories that included sustainability, EICC risk assessment, environmental
management programme and goals and performance improvements, to evaluate new
suppliers beginning in 2010. Suppliers were said to be trained on these new metrics in 2009.
Also in 2009, CS1 created a new framework and scorecard for assessing environmental and
social governance priorities of the supply chain. Priorities are determined through a scoring
system of criteria that also considers the priorities of stakeholders.
According to its CSR reports, on additional EICC related activity with suppliers was
an internal training course on supplier corporate responsibility. CS1 buyers and managers
were also reported to work with suppliers on communicating the EICC further down the
supply chain.
CS1 has been active in corporate social responsibility initiatives and is considered
one of the heavyweights in the CSR community. It has received many awards and
recognitions for its activities. At the corporate level, the firm holds supplier forums, annual
supplier training conferences and awards for preferred suppliers. Recently, it included EICC
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compliance in its award criteria. Following in the footsteps of HP, it also released a list of its
top suppliers in 2010 (CSR reports 2008; 2009). CS1 is said to have plenty of resources and
budget allocation for its EHS programme in comparison to other firms. Its Penang site was
held up as a model and benchmark for other firms by DOSH and NIOSH. The Penang site
has also won the Malaysian National OSH Award in 2006 and 2007.
D. Governing health and safety by CS2
The Penang site of CS2 has a small EHS department headed by a Senior Manager
for Quality, EHS, Human Resources, and Security (from now on ‘EHS Officer’). The EHS
Officer has been at the Penang site since 1986. The Penang site was certified in ISO 14001
and OHSAS 18001. It was reported that all assembly and testing sites for the firm, which
includes its Penang production facility, are OHSAS 18001 certified. While the EHS Officer
noted that when the site chose to obtain the ISO 14001 certification it was not for a
customer requirement, although customers have subsequently requested it. Customers have
requested compliance on the EU Directives RoHs and WEEE and inquired about the
SA8000 international standard on human rights. The EHS Officer believed future requests
may focus on end of life product take back requirements. While this was currently in place
for final products and was the responsibility of branded firms like HP and Dell, it would be
a challenge if it was required for component manufacturers like CS2, noted the EHS officer
(CS2, personal interview, 25 August 2008, Penang).
CS2 has a Global EHS Policy, standards and management system – the latter largely
follows the guidelines of the ISO 14001. The main health and safety goals were for an
injury and illness-free work environment for employees, contractors, customers and the
general public. CS2 uses various indicators on its health and safety performance to monitor
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trends and use them to assess training needs of employees and prioritise areas for injury
prevention. All manufacturing sites were said to use performance indicators based on the US
Department of Labour Occupational Safety and Health Administration guidelines on
occupational injury and illness and lost work day case rates. Injury and illness was
calculated as part of workforce productivity.
According to its CSR Report 2008 manufacturing sites were to maintain health and
safety programs that can be audited. The EHS personnel at the Penang site evaluated,
approved and set safety procedures and controls for new equipment and chemicals used at
the site. The site also hosted an annual EHS week to raise awareness and communicate the
importance of EHS to its employees. As part of requirements from the ISO and OHSAS
standards, the Penang site conducted six month management reviews, internal audits and
inspections. Third party audits were also conducted to maintain these certifications. While
third party auditors for the international standards were chosen by the Penang site (e.g. AJA
Registrars Ltd. from the United Kingdom), auditors for quality were chosen by
headquarters. Headquarters was also said to send third party auditors every two to three
years for a comprehensive assessment of the site. A corporate team from headquarters also
regularly audited the manufacturing sites and assisted them with corporate standards
compliance as well as local and regional regulations. Corrective action plans were handled
by both headquarters and site managers.
Similar to CM and CS1, CS2 conducted an employee survey on the receptivity of
CSR values and practices at the site. A study was also conducted on the CSR expectations
of customers, other firms, and socially minded investment firms.
There were also differentiated training between employees on the production line
and those in management. How health and safety standards were communicated to
employees at the Penang site depended on their positions at the firm. According to the
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Director of the Penang site, factory workers were not told about the laws because “it is too
much information” for them while management employees received specific information
regarding laws and regulations. The site also established a free health clinic for employees.
However, it was available only to high level staff in management and not production line
workers (CS2 Director, personal interview, 25 August 2008, Penang).
The Penang site was engaged in a small amount of outsourcing to companies in
China. Like CS1, manufacturing activities that were subcontracted locally were performed
on-site using the Penang site facilities and equipment to ensure CS2 supervision over the
work. When it came to supplier governance, the Purchasing and Security departments were
responsible for on-site audits or paper based assessments of suppliers. Part of supplier
governance by the Penang site was conducting on-site checks on the environmental
performance of new suppliers before placing them on approved lists.
Although CS2 joined the EICC in 2006, the EHS engineer and Director did not
mention the industry code during the interview. According to its website and CSR reports,
CS2 firm standards are said to be aligned with the EICC and the Institute for Supply
Management’s Principles for Social Responsibility (ISM Principles). In 2008, CS2 began
working on establishing a management system consistent with the EICC and ISM Principles
and updating its processes for rating and receiving feedback on supplier performance.
According to its website, the EICC and the ISM Principles are targeted at its high risk top-
tier strategic suppliers. These are suppliers that are integral to the long term business of
CS2. EICC implementation is therefore handled at the headquarter level and not by the
manufacturing sites.
Like CS1, CS2 has visibly increased it CSR activities since 2008. The firm hired a
new Corporate Responsibility Director in 2010 who previously worked for its biggest
competitor. It also set up an active blog on CSR. It abolished the annual CSR report in 2009
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and opted instead to report on a continually and updated manner on its website. Its website
also stated aims to improve dialogue with stakeholders.
E. Governing health and safety by CS3
CS3 has a highly qualified certified Safety and Health Officer (SHO) who has been
at the Penang site since 1999. The SHO holds two Master degrees, one in Business
Administration and another in Security Management. The Penang site also had an in-house
doctor. CS3 was ISO 14000 and OHSAS 18000 certified, which have been customer
requirements since 2003. The Penang site also complies with RoHS which is a lead-free
product requirement increasingly requested by customers for the EU market according to the
SHO. Customers also provide banned chemical lists such as those banned under the Kyoto
and Montreal Protocols. CS3 joined the EICC in 2008.
The firm has a Quality, Environment, Health and Safety policy statement. At the
Penang site, a copy of the policy signed by the CEO and personnel are provided to
employees in Bahasa Malay and English. The Penang site also has its own Safety Policy that
ensures the firm has a safety committee, meets the Malaysian regulation on occupational
health and safety, utilises audits to ensure continuous improvement, corrects and eliminates
potential hazards, and trains and involves employees in safety and health awareness
programmes. EHS governance at CS3 consists of implementing corporate standards and
procedural guidelines.
At the Penang site, lead is used in soldering PCBs, according to the SHO. There are
also chemicals such as Isopropyl Alcohol for cleaning purposes and others stored in a
cooling tower on-site. On health and safety, the Penang site conducts health risk
assessments on the severity, occurrences and hazard and risk levels of its different
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production activities. The results are used to prioritise areas that need more attention, for
example where workers handle chemicals. The assessments over potential risks are
elaborate and complex and involve a scoring system of one to three (one being ‘no risk’ and
three being ‘high risk’). The score for a particular activity considers the average risk score
among other CS3 sites, whether any government regulations apply, and whether there are
customer requirements involved. These risk assessments normally take place every six
months for all production activities even if there have been no changes to their risk levels.
However, when products and production lines are changed or an accident has occurred,
safety and risk factors are re-evaluated for that activity. Because production processes and
products change frequently, risk assessments are said to take place four to six times a year
according to the SHO.
Like CS1 all CS3 manufacturing sites are able to communicate with and see each
other’s activities through a company intranet, which hosts an extensive interactive database.
On EHS, the Penang site is lauded for its work and is used a model for other CS3 sites. In
fact, the SHO has trained and audited the US site and is often requested for visits by other
sites.
New employees receive induction training on health and safety. There are quarterly
refresher sessions and new chemicals are explained to employees. The SHO also spoke of
employee behaviour as a factor in the health and safety situation at the manufacturing site.
In addition to increased employee awareness over the last few years, the SHO found the
change in the approach of applying ‘upstream pressure’ where workers were told what to do
to one of ‘downstream pressure’ where the importance of health and safety was discussed
with employees had been positive. According to the SHO education was more important
than warning letters, which could be demoralising. Employees were said to have come to
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feel more comfortable calling the SHO over the years -- even in the middle of the night to
complain about “smelly chemicals” or if they felt unsafe.
There is also a heavy audit process at the CS3 Penang site. Annually, it was said the
site received audits to maintain its ISO 14000 and OHSAS 18000 certifications. The
auditors, the German organisation TÜV, were chosen by headquarters. The site also
received audits from some customers – some of which audited on its EHS conditions. On-
site audits were only made by a specific group of customers however whose corporate
policies require them to do so, such as Emerson and Cisco. According to the SHO, many
customers like Foxconn, only sent questionnaires instead of auditors.
The SHO believed that having a TÜV certification sent a strong message that its
operations were in good condition. The SHO also found that while the ISO and OHSAS
standards have raised the firm profile and given it more mileage for attracting customers,
business dealings still depended first and foremost on its quality conditions.
When it comes to supplier governance, the Penang site had a supply chain
department that ensured suppliers met its requirements. For example, the department
requested EHS declarations and investigations of suppliers, which are carried out by the
SHO. Most of the suppliers used are not local or Malaysian (according to the SHO only
around 20% of suppliers are local). The SHO has visited supplier sites in China, the US, and
the Philippines to look into their processes and compliance of environmental and safety
requirements before business contracts are made. For its printed circuit board assembly
operations, the Penang site purchased boards and parts from suppliers designated by its
customers. The SHO believed customers themselves looked into the safety conditions and
requirements of the suppliers they approve, though it could not be verified.
F. Governing health and safety by CS4
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CS4 is the only first tier supplier interviewed that did not have a full time employee
responsible for EHS matters at the site. Instead, the Penang site had an EHS consultant who
used to be a full time employee before the firm was acquired by a Singaporean firm. The
EHS consultant has been a certified SHO since 1999 and conducted job safety assessments
and inspections of the production lines at the site. The consultant reported to management,
submitted reports on hazards, and provided mitigation recommendations. The consultant
also acted as Secretary for the EHS Committee Meetings.
According to the EHS consultant, despite being a multinational corporation, CS4 has
costs and profit margins similar to an SME. As a result it had a smaller budget for EHS due
to more cost saving measures compared to American and European firms. This may help
explain some of the differences seen in the activities at CS4 in comparison to the other first
tier suppliers examined above.
The Penang site acquired ISO 14000 in 2000 and OHSAS 18000 in 2004 to meet its
customer requirements. Unlike the other first tier suppliers investigated, CS4 was the only
first tier supplier site interviewed that did not report to its headquarters on EHS matters.
Where the headquarters did participate in governance matters was by sending a third party
auditor every few years to conduct a thorough assessment on all aspects of EHS at the
Penang site. The site was also audited every six months by the Swiss auditing firm SGS to
maintain its international standards certification. Like CS3, customers were said to send
third party auditors to ensure the site met their specifications and EHS standards.
According to the EHS consultant, health risk to workers were from chemical spills,
use of solder and fumes from solder - which consisted of lead - and solvent flux. Workers
exposed to lead were said to undertake annual monitoring medical surveillance and the EHS
consultant assured me there have not been any workers found to be exposed to lead.
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Table 6.2. EHS Governance profiles of first tier firms
Resources for
governance
measures
International standards
Employee
behaviour-oriented
programmes
EICC
Supplier
governance
EU
Directives
Use of
lead
CSHQ
Four person corporate
responsibility team; small environment
team; EHS Steering Committee
ISO 14001
OHSAS 18001
Yes
Member
since
2006
Expects
suppliers to comply with
EICC
Yes
CM
EHS Officer ISO 14001 Yes Founding
member
Requires ISO
14001, list of banned
substances,
some audits
Yes
CS1
EHS team
consisting of Senior EHS engineer,
environmental
engineer, safety engineer and
occupational nurses.
ISO 14001
OHSAS 18001
Yes
Joined
shortly
after EICC formed in
2004
EHS
requirements
(safety policy and safety
guide) written in contracts,
on-site inspections, test
safety
programmes with suppliers
Yes
CS2
A Senior Manager for Quality, EHS,
Human Resources and Security
ISO 14001
OHSAS 18001
Joined in 2006
On-site
inspections or paper-based
assessments
Yes
CS3
Safety and Health Officer and a
trainee
ISO 14001 OHSAS 18001
Not a
member
Conducts on-site inspections
and requires safety and
health
declarations
Yes Yes
CS4
A consultant on
EHS
ISO 14000
OHSAS 18000
Member
at least
since 2008
No
Yes
Health and safety training of engineers, technicians and supervisors on ISO 14000,
OHSAS 18000, and EHS generally was conducted by the EHS consultant. Factory or
production line workers, however, were trained on the line/while they worked by production
trainers. The production trainers were given documentation with information on chemicals,
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personal protective equipment, lead, medical surveillance, among others by the EHS
consultant to communicate to the factory workers. The behavioural aspect of worker
compliance to health and safety standards was again highlighted during this interview. The
EHS consultant felt some workers, both administrative and on production lines, lacked
motivation to follow rules and standards.
The types of activities the CS4 Penang site subcontracted included moulding, metal
piecing, wheels and gears. Suppliers were in countries such as China, Singapore and
Malaysia (but not in Penang). There was no supplier governance undertaken by the Penang
site.
CS4 does not issue annual CSR reports. Though it is unclear when the firm joined
the EICC, CS4 was listed as a member in the EICC 2008 Annual Report. Its website also
reported on a social code of conduct modelled on the EICC that applied to all employees.
The EHS consultant, however, did not mention the EICC during interview in 2008.
4. Summary discussion of governance activities
Findings from the first tier supplier at a headquarter location and in manufacturing
sites in Penang show that the majority of suppliers complied with similar customer
requirements, including international standards, codes of conduct, banned chemical lists and
approved suppliers list (see Table 6.2). Most suppliers had their own corporate standards,
EHS programmes, used similar sets of implementation tools, provided worker training on
health and safety, and undertook some sort of supplier governance mechanisms (CS4 being
the exception). The following sub-sections will explore the similarities and differences of
each of these aspects of governance among the various suppliers in more detail. Part of this
discussion will be told from the perspective of the environment, health and safety officer,
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engineers, consultant and director (from now on ‘EHS managers’). Much of the ‘success’ of
carrying out governance at a distance depends on these actors. How they work to form a
governance connection between headquarters and manufacturing sites are shaped by their
activities and perceptions. As a result, the discussion below will bring out further findings
that relate to the perspective of governmentality in the governance activities and perceptions
of EHS managers and parallels it draws with the modular value chain literature.
A. Governing EHS at a distance
Most of the first tier suppliers complied with the same set of standards and codes of
conduct. For the most part, they included ISO 14001, OHSAS 18001, and supposedly
(according to firm websites and CSR reports) the EICC - although it was not specifically
mentioned by most EHS managers at the manufacturing sites in Penang. They also had their
own company specific policies and programmes on EHS. To show compliance of these
various customer requirements, suppliers must ultimately engage in processes of self-
regulation that requires the production of a vast amount of documentation.
EHS managers were engaged in monitoring, inspecting, implementing corrective
action plans, achieving and documenting goals for zero accident rates, reporting,
benchmarking, among others. There were procedures in place for dealing with exposures,
mitigation activities, to-do-lists as well as standard operating procedures for identifying
risks, critical success indicators, and a matrix set of guidelines for scoring risk levels.
These mechanisms or techniques of self governance involved a lot of documentation
of data. While these numbers and evaluations were shared with headquarters, they were
ultimately prepared for presentation to auditors. Auditors were shown internal audit forms,
lists of chemicals, documentation attesting to consultation and communication with
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chemical suppliers, and photos, among others. Audits were conducted to maintain certified
international standards as well as show fulfilment of corporate standards and codes and
customer requirements. Audits were conducted internally by auditors sent from headquarters
and/or third parties. While corporate audits ranged from once a year to every three years for
the different firms interviewed, compliance of international standards such as OHSAS
18001 (and ISO 14001) required annual audits.11
Most EHS managers felt positive about their governance activities, particularly
audits. Several SHOs felt audits provided them with information and best practices on how
to improve the performance of the site. Audit results were also used for benchmarking. The
manager at CS3 felt complying with standards allowed the firm to showcase or market to
the world its high qualifications. Standards compliance also provided a signal to others that
the firm was engaged in strategic planning. The manager spoke of a return on investment
from its environmental, health and safety programmes. The manager of CS4 was the only
one to complain of having disagreements with auditors who were said to follow the books
and the law too strictly. However, despite such complaints the manager felt that showing
compliance with standards brought more business to the firm because it made the customer
happy.
As discussed in Chapter 3, there is power embedded in the ability of calculative
technologies and audits to simplify domains such as health and safety into numerical
indicators that can be collected and communicated as legitimate representations of the
conditions or risk to far away locations (between manufacturing sites and supplier
headquarters and between supplier headquarters and lead firms). Indeed the audit is a
technology that allows for governing at a distance and helps realise governance of vast
GPNs (Power 1997; Rose 1999). EHS managers reported their compliance of the standards
11 There are also audits or inspections from DOSH for compliance of the national occupational safety and health regulation every fifteen months (see Chapter 8).
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and codes regularly to headquarters (with the exception of the Singaporean firm) through
monthly or even daily reports on company intranets. Thus, the use of information
technology such as intranets and online databases play an important role in bridging the
distance between headquarters and manufacturing sites by facilitating the transfer of
information across borders. While their online communications were complemented with
conference calls, video conferences and annual face to face conferences, they acted more as
reminders that the EHS managers belonged to a group or community that is global and for
most of the time distant. One EHS manager aptly described belonging to a “virtual safety
team”.
In addition to allowing the performance of the Penang manufacturing sites to be
compared, discussed and benchmarked against other sites, the “lessons learned” from
incidences or hazard and risk level assessments were made visible to all other EHS
managers located worldwide through intranets. For some EHS managers, the health and
safety performance of their manufacturing site was in “competition” with other sites as a
result of the benchmarking exercises amongst sites.
The ideas of the use of governmentality techniques for governing at a distance have
parallels with the modular value chain concept. Indeed, inter-firm communication of
complex information is made easier through codification and standardisation of information
and the use of information technology (Gereffi et al. 2005; Sturgeon 2002). While the
modular value chain is focused on inter-firm relationships, the discussion in this chapter is
focused on the transfer of governance information across borders intra-firm between
manufacturing sites and headquarters.
B. The implication of worker ‘behaviour’
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However, not all aspects of health and safety governance are conducive to
standardisation or calculative techniques conducive for governance at a distance. This is
especially the case when it comes to workers and their ‘behaviours’. While the subject of
health and safety governance is the worker on the production line, there was little of their
involvement in the actual governance exercises or proper consideration of the impacts of
health and safety on them. Even during factory floor “walk-throughs” by auditors, it was
never mentioned that auditors spoke with workers. Where workers were involved was in
being training and be communicated to about the hazards and risks of their activities and the
ways to mitigate them. All EHS managers discussed the ways in which the depth and
communication style of health and safety training for workers on the production line was
different from non-production line workers. Operators were not always told of the law or
not in much detail and were given a simpler version of the information other employees
received.
This differentiation was accompanied by a perception of “worker attitude” or
“behavioural problems” that several EHS managers found contributing to the problems of
health and safety. One firm had conducted a study, which showed injuries were due to the
behaviour of workers. It was not, according to the EHS manager, the fault of the equipment
since they had a third party certification from the United States for safety. Several firms
discussed the need to change “mentalities”, “mindsets” or “culture” in order to implant a
safety culture in the workplace. An “Asian culture” was described as a characteristic of
weak regulatory enforcement and non compliance by the EHS officer at CS1. Malaysians
were said to be lacking education on environmental impacts for example when compared
with the US. In the US it was said safety was taught and considered important from
childhood (EHS engineer, CS1, personal interview 2008). These differences were all
implicated in the problems of health and safety.
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How production line workers were communicated with was considered important for
bringing about a cultural change in the workplace. Messages originating from headquarters
such as “safety is value” and “safety is part of our life” were mottos proudly shared with
employees. The director of CS2 described communicating health and safety issues to
operators like “talking with a child or youngster”. The EHS manager of CS3 changed its
“upstream pressure” approach where operators were told what to do to a “downstream
pressure” where hazards were discussed with workers to gain their understanding of the
issue. For example, the EHS manager of CS3 described telling a production line worker that
if he does not follow the risk mitigation procedures “he can die, if you don’t take care of
your health [and] then they realise and say ‘oh, I don’t want to die’”.
C. Long term worker health conditions kept invisible
At its extreme, workers were being kept ‘invisible’ in the long term by the
governance techniques employed at the manufacturing sites. There was also no long term
health tracking of workers. While there was annual medical surveillance for those working
with certain chemicals, there had been reports of workers refusing hospital visits or taking
medical leave when ill, preferring not to miss work days. Medical records that are kept by
nurses and doctors at firms in Penang are said to be not available to the public and destroyed
after a few years (labour activist, personal interview, 2008). According to a labour activist in
Malaysia, foreign workers on two year contracts have the mindset of simply working,
earning money and returning home. If they fall ill, they will go home to recover. The fact
that foreign workers are given two year contracts and leave the country renders them almost
invisible. A doctor in the Ministry of Health in Penang concluded that because foreign
workers are young, cannot and do not get pregnant (pregnancy is prohibited in their work
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contracts) and leave in two years means they do not fall ill (or more accurately are not seen
if they fall ill). There is essentially a de-linking of the human health impacts of health and
safety conditions in the workplace from its governance objectives. Thus, worker health
conditions and particularly in the long run tends to fall in the ‘shadows’ of the governance
system used by firms.
The governance systems employed by these firms are essentially management
systems. The EHS managers hold management degrees and are equipped with the
knowledge to undertake governance from a nationally mandated certification programme on
occupational safety and health management under the Malaysian National Institute of
Occupational Safety and Health. Some received training from headquarters or elsewhere and
the majority held Master degrees on issues relevant to occupational safety and health
management. On average, the EHS managers had been in their field over ten years. They
considered themselves “experts” on health and safety management. Some felt they were
more knowledgeable of the issues than the officers at the Malaysian Department of
Occupational Safety and Health (DOSH). One manager proudly noted being the eleventh
certified health and safety officer in the country. However, their qualifications do not
require them to have knowledge or an expertise on the medical impacts of chemical
exposures and other harms to workers. The effects of chemicals and other harmful agents on
the human body is not part of the curriculum of occupational safety and health management
degrees nor are they a major feature of the standards and codes of conduct. Chemical and
material safety data sheets are used for labelling and communicating with workers who may
not always understand the risks involved (personal interview, labour activist, Malaysia,
2008).
Most of the EHS managers interviewed did not find significant health risks in the
chemicals used in their factories. In the opinion of the EHS manager at CS1 that produces
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motherboards, “if you ask me, we don’t use any hazardous chemicals”. The EHS manager
of another firm listed the hazardous items as rejected parts, spills, electronic waste and
empty containers without reference to their impacts on workers. The EHS manager at CS3
found engineers commonly assigning a lower risk assessment for production activities in
order to minimise the amount of controls and other administrative tasks they would be
responsible for. The EHS contractor for CS4, for example, felt that health impacts written in
the books used by auditors were more severe than what was the case in reality.
D. Lack of EICC implementation
One clear sign of a key weakness of governance in the personal computer GPN was
the weak implementation of the EICC by the first tier supplier sites in Penang -- despite the
strong commitment at the top of the GPN by HP to ensure its major first tier suppliers were
in compliance with the industry code. Most of these suppliers were in top 100 suppliers of
HP in 2008. Because all of the EHS managers at the Penang sites except CM interviewed
did not discuss the EICC, it implies that the industry code did not factor in the day to day
governance activities at these sites. As a result, the sites were not implementing the code
with their local (second tier) suppliers and hence pushing the code down the GPN.
The lack of knowledge of the EICC at the Penang sites, however, was in contrast
with the supplier firm’s websites and CSR reports. Within these public information sources,
the largest suppliers (CM, CS1 and CS2) reported on the EICC (being) incorporated into
their firm specific code and standards and efforts to implement it with their (second tier)
suppliers underway. Despite these reports, EICC implementation by second tier suppliers
remained minimal. For example, out of its 9,000 suppliers, CS1 was able to conduct internal
risk assessments on 500 out of which only 15 were deemed ‘high risk’ and suitable for
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EICC enforcement. Similarly, CS3 assessed less than 2% of its suppliers against the code in
2008. Only CS1 moved beyond the initial stage of assessing suppliers by scheduling audits
for its 15 high risk suppliers, which were not conducted due to problems faced by the EICC
on auditor quality (CS1 CSR Reports, 2008, 2009; CS2 CSR Report, 2009; CS3 CSR
Report, 2010).
From these findings, EICC implementation seems to be handled not at the
manufacturing sites but by corporate headquarters. Moreover, only key and strategic
suppliers were targeted leaving smaller suppliers down the GPN out of the EICC
governance system. At the Penang sites, many of the suppliers were pre-selected by branded
customers and placed on approved vendor lists. It is not clear whether these second tier
suppliers were assessed for their environmental and social performance by the branded
customers themselves. This would not be the case with HP, for example, which does not
hold contractual relationships with second tier suppliers and according to the HP manager
does not hold them accountable to standards compliance. Further, local suppliers to the
Penang site whose components are not used for final products but for testing or in products
not destined for developed country markets with private governance requirements were
required only to comply with Malaysian regulations (EHS managers, personal interviews,
2008). This suggests that the further down the GPN one travels (and further away from the
corporate headquarters), the responsibility for and implementation of the EICC with
suppliers becomes unclear.
The EICC approach holds lead firms responsible for governing their (first tier)
suppliers and holds first tier suppliers responsible for governing their (second tier) suppliers.
This logic, however, is a challenging one in a GPN that expands the number of suppliers and
constricts the budgets that firms allocate to EHS down the supply chain. A key question
arises as to whether lead firms passing the responsibility onto first tier suppliers with lower
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resources allocated to manage a large pool of second tier suppliers (while demanding low
cost products and services) is a realistic and feasible governance strategy.
The difference between the ability of HP and its first tier suppliers in implementing
the EICC is stark. At CSHQ, the CR Director emphasised the importance in the resource
and capacity differences between first tier suppliers and branded firms. The lack of
resources was said to be the ‘biggest constraint’ contributing to 90% of the problems first
tier suppliers faced with implementing the EICC. A situation, according to the CR Director,
that was not fully considered by brand firms like HP. The brands invest a lot of resources
into their CSR activities because their reputations and brand values were affected by
pressures from external stakeholders. This was not the case however for first tier suppliers
that were generally unknown to the public and were not targeted by CSO campaigns.
Engagements by the largest first tier suppliers interviewed with CSOs at the headquarter
levels were very minimal. CS2, for example, reported plans to engage with CSOs for the
first time in the future (CSHQ CR Director, personal interview, 2008; CS1 CSR Reports,
2008, 2009; CS2 CSR Report, 2009; CS3 CSR Report, 2010). Without interactions with
CSOs, executive management of suppliers like CSHQ did not feel the pressure nor see the
need to channel resources into corporate governance activities.
The research findings suggest a degree of isolation of manufacturing sites from the
governance lens of customer firms. There was a general absence of customer scrutiny,
audits or follow-up over the EHS performance at the manufacturing sites. While most sites
received regular customer audits focused on quality, only CS3 and CS4 received customer
audits on environmental, health and safety. The manufacturing sites received their pressures
on health and safety governance from their headquarters rather than directly by customer
firms. This was also the case for CSHQ. Its manufacturing sites did not feel pressure from
customers to implement the EICC but from headquarters. Similarly at CM, the EHS Officer
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felt that while the driver for improved (environmental) governance in the industry was
pressure from the global CSO community, for the manufacturing site it was the corporate
headquarters. This suggests that where (and if) customers did apply pressure on suppliers on
EHS standards it was concentrated on headquarters who must ensure they are met by the
manufacturing sites. However, this is not the case for quality and other business related
conditions. On these issues customers preferred to verify supplier performance for
themselves.
As the discussion in the previous chapter on HP showed, while brand firms have
relative control over resources, and capacity to enforce codes and standards with suppliers,
the situation is quite different for suppliers. Before the EICC, first tier suppliers complied
with ISO standards and company specific codes and standards of their own and those set by
customers. They did not have to expend much resource on governing their (second tier)
suppliers. Some first tier suppliers required their second tier suppliers to comply with
different ISO standards and bear the costs of implementation on their own. Today, first tier
suppliers who are EICC participants continue to comply with ISO standards, the EICC and
have to implement the EICC with their suppliers. CSHQ also noted the high cost of
subscribing to E-TASC for its smaller suppliers which was 500 USD per site and an
additional 15,000 USD for use of the whole SAQ tool for a supplier. This creates another
impediment for pushing the EICC down the GPN where such fees would be very costly,
particularly for SMEs, noted the CR Director at CSHQ.
The EICC has in effect increased the cost of governance for first tier suppliers in the
GPN. This is particularly challenging for an industry that competes intensely on price (firm
interviews; International Metalworker Federation interview 2008; Holdcroft 2009). Without
the allocation of proper budgets and resources for governance activities, first tier suppliers
may not easily cope with the changes and reforms the EICC requires. Adopting any new
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measure that does not contribute to one of the three objectives of low price, speed and
quality may be difficult to justify as was the case for CSHQ.
While suppliers have complained of high implementation costs, the HP manager
interviewed clearly placed the responsibility of environmental and social improvements on
its suppliers because they have the factories and machines. Judy Glazer, HP’s Director for
Global Social and Environmental Responsibility Operations paralleled supplier complaints
of the EICC to their initial resistance with implementing quality management systems
during the 1970s and 1980s. Glazer noted that over time suppliers adopted the systems
without customers forcing them to do so because it was a way to make more money. The
director implied compliance with the EICC would provide suppliers with a competitive edge
(Making Supply Chains Socially Responsible: Environmental Sustainability in Electronics
2007).
Further, the competitive nature of the industry may pose additional challenges for
the success of the EICC governance system. There is a cultural embeddedness of anti-trust
concerns amongst EICC member firms. Indeed, the risk of technological and intellectual
property leakage is rife in the electronics industry. Many branded firms share the same
suppliers and these relationships are confidential. While the EICC has a set of Antitrust
Guidelines, which are read at every meeting, firms also have their own legal teams advising
them on what can be disclosed with other EICC members. As the CSHQ CR Director and
then Board Member of the EICC stated ‘If we could avoid the competitive issues and we
have very, very strict anti-trust rules, there are a lot things that we can’t do that we have to
be careful about. In terms of sharing information primarily the biggest one of all is not
divulging who we each supply and buy from. That is absolutely off limits’ (CSHQ, personal
interview, 2008; EICC Annual Report, 2008). Glazer also noted the difficulties in bringing
together the group of firms stating “We have a whole set of relationships where we are
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customers, suppliers, competitors to one another and with many of the people in the
collaboration we are all three. So there‘s things we can‘t talk about, there‘s things where the
collaboration and the business relationship start to kind of impinge on each other...”
(Making Supply Chains Socially Responsible: Environmental Sustainability in Electronics
2007). The difficulty with sharing information was also revealed, for example, during the
development of the shared audit programme. Concerns were raised on whether sharing audit
results amounted to firms having inappropriate access to information about each other.
Moreover, placing trust on a third party auditor to manage those concerns was not easy for
some members. A CM member noted in 2007 that while the issue could be dealt with
operationally, however, ‘from a comfort level, there is still a bit of road to travel on getting
there’ (Making Supply Chains Socially Responsible: Environmental Sustainability in
Electronics 2007).
Table 6.3 EICC implementation internally and with second-tier suppliers
CSHQ
- joined the EICC in 2005 - considerable effort involved in implementing it with the manufacturing sites
- 27 suppliers (out of around 9,000) completed the SAQ in 2009
- two shared EICC audits planned for 2009 were cancelled due to resource constraint
CM
- founding member of the EICC in 2004 - no mention of the EICC at the Penang site in 2008
- manufacturing site reported being in compliance in 2010
- in 2008, less than 2% of suppliers were initially assessed against the code by CM
- in 2009, suppliers were requested to complete the SAQ
CS1
- joined the EICC in 2004 - no mention of the EICC at the Penang site in 2008
- in 2009, initially assessed 500 suppliers (out of around 9,000) - in 2009, 74 suppliers completed SAQ
- in 2009, 15 suppliers were targeted for shared EICC audits but were
cancelled due to auditor problems
CS2
- joined the EICC in 2006
- no mention of the EICC at the Penang site in 2008 - firm began working on a management system consistent with the EICC in
2008
CS3 - not an EICC member
CS4
- joined the EICC in 2008 - no mention of the EICC at the Penang site in 2008
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It is clear that the EICC envisions itself to be an ambitious harmonised code of
conduct. Its sophisticated set of implementation tools, which requires reforms in internal
management systems and culture, has shown to be more costly than purported. While the
sophisticated implementation tools may help to increase the legitimacy and credibility of the
EICC, it can only do so if firms implement them and obtain supplier compliance. This is
particularly the case for CMs that command some of the largest supply chains in the
industry.
5. Conclusion
This chapter is the first of several to focus on the findings gathered in Penang,
Malaysia. It focused on answering all three research questions which are examined at the
first tier supplier level of the GPN. They are
i. What private governance mechanisms are used for safeguarding
environmental health and safety in the personal computer global production
network?
ii. How are these health and safety governance measures implemented through
inter-firm relations amongst the various tiers of suppliers in Penang, Malaysia?
iii. How do firm and non-firm actors affect the health and safety governance
practices at the supplier sites in Penang, Malaysia?
With regard to the first and second research questions, the chapter provided a detailed
description of the ways in which each first tier supplier undertook health and safety
governance internally as well as with their own (second tier) suppliers. The second half of
the chapter, responding to all three research questions, engaged in a discussion of the key
features arising amongst this group of first tier suppliers. They included the important role
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EHS managers and particular governance measures or governmentality techniques played in
the ability to govern at a distance between headquarter and manufacturing sites. Worker
‘behaviours’ was also raised as a factor that implicated in the challenges of governing health
and safety at the workplace by almost all of the EHS managers. It was also shown that the
health and safety governance programmes implemented by the suppliers did not consider the
long term effects on the health of workers. Finally, the research findings point to a lack of
EICC implementation down the GPN to this group of first tier supplier manufacturing sites.
The GVC framework and its modular governance relationship concept are of limited
use when responding to research question (ii) at the first tier supplier manufacturing site
level of the GPN. This is because most of the first tier supplier sites did not have a direct
relationship with their customer firms or lead firms when it came to health and safety
governance. Therefore, arriving at an accurate description of the power relationship between
these two groups of firm actors is difficult to achieve. The modular value chain concept also
does not characterise the governance relationship between first tier and second tier
suppliers. The findings from this research showed that the first tier supplier sites in Penang
did not always have full control over all of their (second tier) suppliers. This was
particularly the case for second tier suppliers that had been chosen or placed on approved
vendor lists by customers. This suggested that first tier suppliers did not have the power to
decide on or discriminate their second tier suppliers based on their environmental, health,
and safety performances.
A key feature of the discussion in this chapter is the importance of intra-firm
governance relationships, which is neglected in the GVC framework. For the manufacturing
sites of first tier suppliers in Penang, their relationship with headquarter offices was more
important if not the only type of governance relationship they had over health and safety
conditions. Indeed, one of the key findings from the interviews with EHS managers was
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their lack of direct interaction with customer firms including lead brand firms. Hence, the
manufacturing sites were for the most part isolated from interactions with customers or lead
firms when it came to health and safety governance requirements. This is a challenge to the
GVC framework, which focuses solely on inter-firm relationships.
Using the broader conceptual framework of GPN allows for the application of
different concepts of power that can reflect the governance relationships at the intra-firm
level. Thus, I turned to the governmentality perspective to better understand the power
dynamics at play at the micro level of day to day governance activities of the EHS
managers. Examining the governance practices at the sites using the governmentality
perspective provides important insights into what makes GPN governance or governance at
a distance possible. It shows the crucial role that EHS managers play in making governance
at a distance possible by taking on the multiple roles of relays of information, governor, and
the governed.
As relays of information, EHS managers were to implement and show or
communicate compliance of health and safety standards and codes to their corporate
headquarters. Much of the intra-firm activities involved EHS managers reporting results
from a variety of governmentality techniques they were responsible for. As was discussed in
the previous chapter, the use of calculative governmentality techniques such as scorecards,
indicators, benchmarks and the audit are necessary for governing at a distance as they
simplify information that can be documented and easily communicated and transferred
across spaces.
As governors, EHS managers had become experts in governmentality techniques or
the ‘conduct of conduct’ as they governed over the health and safety conditions in the
factories. EHS managers believed in the importance of their governance activities without
questioning their efficacy on safeguarding the health and safety of workers. For example,
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several EHS managers felt audits provided them with information and best practices that
could also be used for benchmarking. One EHS manager felt complying with standards
allowed the firm to showcase or market to the world the high qualifications of the site.
Standards compliance was said to provide a signal to others that the supplier was engaged in
strategic planning and helped bring more business. These findings also suggest that the
ultimate benefit or aim of techniques like the audit for EHS managers was improving
business opportunities – not necessarily safeguarding the health and safety of workers.
In addition to being relays of information and governors of health and safety, EHS
managers were also themselves subjects that were governed. By fulfilling their governance
tasks and duties set forth by headquarters, they themselves became disciplined in self-
regulatory processes. Benchmarking results, for example, were reported on intranet
databases and were used to compare, discuss, and benchmark against other sites. The
disciplinary effect of the comparative technique of performance benchmarking is the pitting
of EHS managers in competition with other sites over the ‘conduct of conduct’.
For addressing research question (iii) the GPN framework is used to understand how
non-firm actors such as CSOs can affect the governance practices at the supplier sites. All of
the first tier supplier sites interviewed in Penang had not engaged with or felt pressure from
external non-firm actors such as CSOs. This reflects the greater targeting by civil society
campaigns on lead firms in the electronics industry and at the global scale to the neglect of
suppliers at the local (this is discussed further in Chapter nine). This finding is important
because, as was suggested from the interview with CSHQ, insufficient resource allocation
for supplier governance is tied to external pressure. Indeed, most of the first tier supplier
sites were also engaged in minimal, if any, health and safety governance over its own
second tier suppliers. This was well illustrated by the lack of EICC enforcement by this
group of first tier suppliers on their second tier suppliers. This finding is in stark contrast
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with the previous chapter on HP. Lead firms like HP who are targets of CSO campaigns and
whose competitive edge depends on their reputation and brand image respond to external
pressure by putting more effort and resources into their governance activities. The only first
tier supplier interviewed in Penang – CS1 - that had taken its CSR activities seriously and
made the most strides amongst the first tier suppliers in implementing the EICC with its
(second tier) suppliers was a ‘platform leader’ whose brand image was an important asset.
Finally, the findings in this chapter also showed that the Department of Occupational
Safety and Health had enforced the Malaysian Occupational Safety and Health Act with the
majority of first tier suppliers. Most of the first tier suppliers, who are all multinational
corporations, had enough resources and capacity to implement the regulation. In this regard,
the state played a positive role in the governance outcome in the first tier supplier sites in
Penang. This experience of regulatory enforcement and compliance however is in stark
contrast with the experience of second tier suppliers, which I turn to in the next chapter.
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CHAPTER 7
SECOND TIER SUPPLIERS
1. Introduction
This chapter aims to tell the story of the governance experiences of seven second tier
suppliers located in Penang, Malaysia. Most of these suppliers are Malaysian firms that are
small and medium sized enterprises (SMEs). They are all involved in PCBA and mainly
supply to MNCs in other countries, which include first tier suppliers to HP. It must be noted
that two of these suppliers, Supplier 4 and Supplier 5, were no longer supplying PCBs to the
computer industry at the time of the interviews in 2008. Instead they supplied to related
electronic sectors and the auto industry. The findings from these two suppliers are
nevertheless included here because they add to the picture of how second tier suppliers
undertaking PCBA that face the same health and safety risks are governed locally.
For many of these suppliers, governance activities are scarce and weak. Indeed a
major finding in this chapter is the significant difference in the governance experience and
capabilities of second tier suppliers from the first tier suppliers discussed in the previous
chapter. In addition to low resources and capabilities available for implementing governance
measures, second tier suppliers showed weak knowledge about health and safety issues,
were not included in private governance systems within the computer GPN and in particular
the EICC, were not recipients of customer audits on health and safety, and faced a lack of
regulatory oversight in order to fill in the private governance gap they faced.
The structure of this chapter is similar to the previous chapter on first tier suppliers.
Section 2 provides the different supplier descriptions, which are more descriptive in nature
in order to provide a snapshot of firm profiles and governance experiences. The descriptions
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include information on the firm size, type of customers and markets supplied to, type of
suppliers or subcontractors used and the type of governance activities undertaken within the
firm and with their suppliers (if any). Because the governance activities of these suppliers
are generally weaker than the first tier supplier and there are no CSR reports to use for
secondary data, the firm descriptions in this chapter are shorter (than those of the first tier
suppliers in the previous chapter). One of the more hazardous substances of PCBA is the use
of lead in soldering and its potential exposure to workers. Where suppliers have revealed the
use of lead it has been included in their descriptions.
Section 3 provides a summary discussion of the main health and safety governance
practices that characterise this group of firms. It discusses emerging trends from the
interview findings and the key factors shaping the governance experiences of these firms.
They include the weaknesses in government regulation and knowledge on health and safety,
the perceived benefits and effectiveness of standards, and the implication of worker
behaviour in the assessment of health and safety performance. These findings are also
compared and contrasted with the experience of first tier suppliers. Section 4 concludes the
chapter.
2. Supplier descriptions
A. Supplier 1
Supplier 1 is a local firm that was established in Penang in 1991 and which has since
become a global firm. It is one of the few success stories of small local firms that have
become globally integrated MNCs. Supplier 1 has four factories in Malaysia, two in the
Philippines and one in China. It also has a joint venture with a Japanese firm. It considers
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itself an integrated contract manufacturer and is the only firm in the group of second tier
suppliers interviewed undertaking the more technologically advanced PCBM (and post-
fabrication semiconductor assembly). It has several large multinational customers most of
them American and Japanese that include Intel, Agilent, AMD and ST Microelectronics –
all of which are large first tier suppliers to Hewlett Packard.
Supplier 1 was the largest firm in this group of suppliers interviewed. In its Penang
facility, it has over 2,500 employees and is listed on the Kuala Lumpur Stock Exchange. It
has an Environmental, Health and Safety Committee and a Safety and Health Officer
(SHO), with whom the interview was conducted. The SHO has been nationally certified
over ten years. The firm became ISO 14001 certified in 2004 in response to customer
requirements. Among the first customers to request the ISO standard were
STMicroelectronics (a large first tier supplier to HP) and Agilent. It is also in compliance
with the EU RoHS, which was required by customers such as Agilent that were supplying to
the European market. It was also being asked to be in compliance with China RoHS by
some customers.
Supplier 1 has an Environmental, Health and Safety (EHS) Committee that develops
worker safety guidelines. Governance activities pertaining to health and safety included first
aid training, health discussions, fire drills, and practicing evacuation routes (Annual Report
2008, 2009). Each department was said to have environmental objectives and targets to
“reduce and reuse”. It also had a core ISO 14001 team of eight to ten persons. Supplier 1
conducted its own monthly online reports and internal audits and received surveillance
audits by the Standards and Industrial Research Institute of Malaysia (SIRIM). It also
submitted lab reports and other reporting forms to its customers for example on their
compliance of RoHS.
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All of its vendors and suppliers were reported to be local and according to the SHO
Supplier 1 did not impose safety and health requirements on them. However, the firm was
said to have assisted its suppliers through advice and training on becoming ISO 14001
certified (though not many of its suppliers became ISO 14001). Supplier 1 was the only firm
in this group of suppliers to have direct interactions with its suppliers on governance issues.
B. Supplier 2
Supplier 2 is a Malaysian SME established in Penang in 1991. It was initially a
subcontractor for wiring activities but moved into what its director called a “turn key
business” in 1995. The founder and managing director, with whom the interview was
conducted, noted that in 2001, after a lot of factories moved to China, it increased its PCBA
activities. Eighty percent of its business in 2008 was in PCBA and the other 20% is wiring.
According to the director, the supplier has maintained around 30 workers since 1991.
Supplier 2 purchased all of its parts and components such as boards, assembled them
and shipped them to its customers. At the time of the interview, it outsourced only one
manufacturing process that required an expensive machine the supplier did not have.
According to the director, the firm’s niche market was based on product quality and value
and not quantity. It did not focus on large quantities because prices in the industry were too
low. For example, Supplier 2 produced fifty pieces of assembled PCBs for an American
MNC over a few weeks using five workers. According to the director, the contract was
worth three quarter million Ringgit (around 211 million USD). Each worker was paid 5,000
Ringgit for the weeks’ worth of work (around 1,404.50 USD).
The director was a test equipment worker at Intel-Penang for seven years, worked
for ST Microelectronics for two years, and another electronics manufacturing services
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supplier before starting his own firm. The director of Supplier 2 has kept the number of
employees small for “easier management”. He spoke of keeping hierarchy out of his firm,
which was something he experienced as an employee in the larger MNCs. The customers of
Supplier 2 were MNCs present on the Penang island or close by on the mainland. Supplier 2
also exported to Canada and wanted to expand to the US, Europe and Australia. It does not
supply to many Malaysian companies because of sales taxes and bureaucratic paperwork –
which were not required when shipping to companies within the FTZs. Shipping overseas
was also desirable because the recipient companies paid for customs duties. The director
does not know the identity of its customers because its products were shipped through a
manufacturer representative. It was its policy according to the director to not ask who the
end customers are in order to protect customer identity and intellectual property. However,
the director could identify, based on the type of PCB the firm assembled, that some of its
products were being used as tester boards by Intel.
The director had undertaken a part-time two year course hosted by the United
Nations Environment Programme and SIRIM designed for SMEs called “Green
Environment”. The course taught its participants the different European Union Directives
such as Energy-using product (EUP), WEEE, and REACH as well as on eco-design and
recycling. The director had a chance to travel to Germany and Spain and visited a PCB
recycling centre. He was aware that the electronics industry had concerns over hazardous
wastes and the need for their proper storage, treatment, and recycling. The course however
did not cover workplace issues such as worker exposure to hazards from PCBA.
Supplier 2 had a company environmental policy but not a Safety and Health Officer.
According to its director, the firm was not required by law to have an SHO due to its small
size. Instead the managing director assumed responsibility over environment, safety and
health governance at the firm and over worker training.
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Supplier 2 did not comply with international standards on environment, safety and
health. There were also no governance requirements or conditions placed on its suppliers or
subcontractor. Customers had not requested ISO 14001 and they were not exporting their
products to the US or the EU. While the director felt the ISO 14001 certification could be
requested in the future, obtaining it would be expensive for a small and medium sized firm.
The director estimated it would cost 9,180 US dollars in total, which would include payment
for a consultant, their accommodation and transport fees, and auditing fees for obtaining
ISO 14001. Finally, because its tester PCBs were not used in final products Supplier 2 did
not have to conform to final market legislation such as the EU RoHS and WEEE.
C. Supplier 3
Supplier 3 is a Malaysian supplier established in 1997 in Penang. It is a PCB
assembler and most of its products were used in satellite radios and health care machinery at
the time of the interview. Only a few of its completed PCBA boards were used in the
electronic industry (however not in computers). The firm had a workforce of around sixty to
seventy employees in 2008 and made around 3.5 million USD per year. One third of its
workforce was foreign and hired through an employment agency. Supplier 3 focused on a
small volume and high mixed area niche -- the opposite of the computer industry. According
to the manager, with whom the interview was conducted, they “supply to less defined
industries” (Supplier 3 manager, personal interview, 25 August 2008, Penang). Although its
PCBA products can be used in computers, it did not do so because of the tough price
competition faced with suppliers located in China and Taiwan. Cost reductions were crucial
in this market, according to the manager.
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The majority of its products (almost 98% according to the manager) were exported
to the United Kingdom, followed by the United States and Australia with the rest shipped
within Malaysia. While the firm had a list of its customers, it was extremely confidential. Its
PCBs were either used by its customers or other suppliers for assembly into a final product.
Supplier 3 purchased boards and raw materials to assemble into PCBs from companies in
Taiwan, China, the United States, and Europe.
The firm does not have a Safety and Health Officer and is not required by law to
have one due to its small size. Instead supervisors were said to teach themselves about
workplace hazards and train the workforce accordingly. Because it exported to the EU, the
firm was in compliance with RoHs (since 2006) and WEEE. There had been no audits,
however, from its customers on health and safety. Supplier 3 did receive unannounced
audits from several government agencies including the Department of Occupational Safety
and Health (DOSH) once a year. The manager found the government agencies not helpful in
assisting with compliance of the Malaysian OSHA. Supplier 3 also used lead in some of its
production activities.
D. Supplier 4
Supplier 4 is a Malaysian firm established in 1978 originally as a plastic moulder in
Penang. In 1985 it began PCBA as a subcontractor for audio products. In 1996 the firm
became a contract manufacturer and original equipment manufacturer and moved into
contract design for its customers. In 2005, it became a publicly listed Consumer Equipment
Service Provider in the Singapore Exchange. Today it has six manufacturing sites in Penang
(where its corporate office is located) and others in the Netherlands, Singapore, China and
other locations in Malaysia. Supplier 4 is considered an Electronics Manufacturing Services
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provider to the automotive, office automation and consumer electronics industries. In
addition to PCBA, it continued to undertake plastic moulding, and test and assembly
modules and box build products.
Its customers are located in Europe, Asia and North America. According to its
website its customers included Flextronics and Canon, both of which are first tier suppliers
to HP. According to the Strategic Development (SD) Director, with whom the interview
was conducted, only a small portion of their assembled PCBs were used in the electronics
industry. A very small amount of its PCBs were shipped to an American customer that used
them in internet interface equipment for computers. The SD Director found the computer
and consumer electronics industry highly competitive and as a result did not engage heavily
in it. The industry was described as being unstable where a supplier could receive very large
orders that “can come today and tomorrow they can disappear” by shifting elsewhere for
example to China which has abundant labour for large quantity orders. “We don’t take
anymore business that will be transferred to China” the SD Director noted (Supplier 4 SD
Director, personal interview, 28 August 2008, Penang). As a result, Supplier 4 focused on a
high mix, small volume business scale that was considered more secure. Supplier 4 supplied
to the automobile industry which was considered more secure because its products had a
longer life span -- around five to seven years -- than electronics. Also, switching suppliers in
the automotive industry was more difficult for customers according to the SD Director.
Supplier 4 was said not to compete on price but on other attributes such as using water
based paints which was attractive to environmentally conscious European customers in the
auto industry.
Supplier 4 had an electronics division which employed around 500 workers. Sixty
percent of its factory workers were from Indonesia. Foreign workers were employed directly
by the firm and not an employment agency. Foreign workers were used because of problems
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with absenteeism among domestic workers (Supplier 4 Strategic Development Director,
personal interview, 28 August 2008, Penang).
The SD Director had a Master degree in quality management, an MBA and a PhD
and was said to have been personally monitoring the ISO standards and its changes since
1991. The SD Director was the management representative on international standards
certification for the firm. This responsibility required him to oversee standards
implementation and performance and worker training for all sites in Penang and report
directly to the company president. Although the SD Director does not have specific
qualifications to conduct worker training, he felt he had a good grasp and understanding of
the intricacies of international standards after spending many years monitoring them. The
firm also had a corporate social responsibility officer and a trained chemical health risk
assessor. However, it was the SD Director who was responsible for conducting internal
audits on standards compliance.
Supplier 4 is ISO 14001 certified and in compliance with RoHs. Every year Supplier
4 was said to call on KPMG, an international audit, tax and advisory firm, to do a thorough
assessment of its conformance to standards. According to the SD Director, the supplier
spends around 15,000 to 20,000 Ringgit (around 4,213 USD to 5,618 USD) per year on
audits to maintain its certifications. In 2008 the firm was working on obtaining an OHSAS
18001 certification to meet a customer requirement.
Supplier 4 used a lot of chemicals from cleaners, hardeners, and ink. Its solder was
made up of 60% tin and 40% lead. It was said to have spent close to 30,600 US dollars per
year to dispose of its wastes. The SD Director also spoke of spending a lot of money on
health screenings for its workers, for example for hearing and eyesight and chemical
exposure. The severity of risk to chemical exposure was assessed by the Chemical Health
Risk Assessor. Where risks were severe, additional health screenings were said to be
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conducted. An annual health check of each worker was said to cost around a hundred US
dollars. It also was said to conduct annual health checks for foreign workers that may have
fewer vaccinations than Malaysians.
E. Supplier 5
Supplier 5 is a subsidiary of an Australian multinational firm that is publicly traded on the
Australian Stock Exchange. The Penang factory was established in 1988. Supplier 5 is a
small firm with a few hundred employees. Its website reported over 650 employees in 2011.
It is a turnkey electronics manufacturing service provider for MNCs and undertakes PCBA
for the auto industry, power tools and box build products. The Environmental, Health and
Safety (EHS) officer at the Penang site offered only a short telephone interview because the
supplier was said not to be engaged in much governance activities.
According to the EHS officer, because of its small size the supplier does not have to
be in compliance with the Malaysian OSHA Act and are not visited by DOSH or the
Department of Environment on EHS issues. Because there was very little EHS governance
activities at the firm, the EHS officer advised me to contact larger companies such as
Seagate and Fairchild and declined a more formal interview. Supplier 5 was ISO 14001
certified as part of its customer requirements since 2003. The EHS officer said the plant did
not use chemicals during the production processes, rather only for cleaning purposes.
F. Supplier 6 and Supplier 7
The respondents at Supplier 6 and Supplier 7 provided very short interviews by telephone.
They declined a formal interview because they were said not to be undertaking health and
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safety governance activities at their firms.
Supplier 6 was a Malaysian SME specialising in PCBA and other electronic
manufacturing processes for the computer industry. In 2008, it reported that its firm size had
dropped to around twenty employees. Because of its small size it did not have a health and
safety officer and according to the interviewee, it was also not required to comply with the
OSHA Act. Supplier 6 was also not in compliance with any private or industry standards on
the environment or health and safety.
Supplier 7 was a subsidiary of a Taiwanese electronic turnkey services supplier. It
was publicly listed in the Taiwanese Stock Exchange. According to its website, in addition
to its global headquarters in Taiwan, it has manufacturing sites in China, Malaysia, Thailand
and Vietnam and a US headquarters and sales offices. The Penang site was stated to have
been established in 1994 and was undertaking PCBA. It had an EHS officer and around 700
employees. According to its EHS officer, they were “very new” and therefore were not
engaged in many governance activities. The EHS officer, however, felt unprepared to
discuss health and safety governance but was willing to do so in the future. It did not
comply with international standards and Malaysian regulations were said to be “very little”
(Supplier 7, Environmental, health and safety officer, personal interview, 2008, Penang).
3. Emerging trends and key factors
This section discusses the main trends on health and safety governance experiences that
emerged from the firm interviews (see Table 7.1). The discussion will also compare the
governance experiences of this group of second tier suppliers with those of the first tier
suppliers from the previous chapter.
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Table 7.1 Malaysian PCBM and PCBA tier two supplier governance profiles for 2008. C denotes
customer requirement and V denotes voluntary compliance
Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6 Supplier 7
Malaysian/ foreign; MNC/
SME
Malaysian
MNC
Malaysian
SME
Malaysian
SME
Malaysian
MNC
Australian
subsidiary
Malaysian
SME
Taiwanese
subsidiary
Number of workers
2,900 30 60 to 70 500 workers in electronics
division
Few hundred in 2008; over
650 in 2011
20 Around 700
Customers
Agilent, Cree, Intel, Ewargo,
AMD, Fairchild Semiconductor
s, ST
Microelectroni
cs
Possibly Intel (but not for
final products)
Sony,
Agilent
Located in Europe (e.g.
Denmark), Asia and North
America; includes
Flextronics,
Canon
(not known) (not known)
(not known)
Exporting to EU Yes No Yes Yes (not known) (not known) (not known)
Its suppliers
local &
international, e.g. China
It had only
one local subcontractor
Taiwan, China, the
United States, and
in Europe
over 500
external suppliers in
the US, Europe, China
and Southeast
Asia
(not known) (not known) (not known)
Safety and
Health
officer/DOSH audits
Yes No No Yes Yes No
(not known)
DOSH audits Yes No Yes Yes No No (not known)
Electronic Industry Code
of Conduct
No No No No No No No
ISO 14001 C (since 2004) No No V C No No
OHSAS 18001 No No No C No No No
Customer audits
No No
For quality,
delivery and other
business
aspects
Pre-award
surveys on financial
account, facilities,
computer
systems, etc. Audits on
quality
Only on
quality (not known)
(not known)
RoHs Yes No Yes Yes No No No
WEEE No No Yes No No No No
Use of lead Yes Yes Yes Yes (not known) (not known) (not known)
One of the key findings is the lack of private international standards compliance by
the second tier suppliers. Only three (Suppliers 1, 4 and 5) out of seven suppliers complied
with ISO 14001. Only one supplier – Supplier 4 - was in compliance with the health and
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safety standard OHSAS 18001. This finding was one of the key differences in governance
practices between first tier suppliers and second tier suppliers where all of the former were
in compliance with international standards. Out of the three second-tier suppliers listed
above, Supplier 4 had originally complied with ISO 14001 voluntarily in order to portray an
environmentally friendly image. These findings then also show that customer requirements
by first tier suppliers for second tier suppliers are largely absent. This is in stark contrast
with first tier suppliers who all faced customer requirements for standards on the
environment and health and safety. Moreover, what was clearly missing from this group of
suppliers was compliance with or even knowledge of the Electronic Industry Code of
Conduct (EICC). This, however, may be less surprising given the difficulties first tier
suppliers seem to face with implementing the EICC with their (second tier) suppliers.
Customers of this group of second tier suppliers however were more, if not only,
concerned with their production quality capabilities. While customers did not audit these
firms on health and safety or environmental conditions, they did however audit several
suppliers (Suppliers 3, 4, and 5) on quality issues. Even where some customers had initial
discussions on environment and health conditions with some suppliers, for example during
pre-award surveys, they were not followed up. For example, Supplier 3 had larger customers
such as Sony and Agilent discuss programmes such as a ‘green supplier’ programme at their
initial award audit, however, “once they audit [on quality and delivery] they don’t really
care too much about it anymore. They will come and they will talk about it but health and
safety is never their main agenda. They’re more looking at how to ensure the quality of the
product, delivery and all that rather than your health and safety...” (Supplier 3, personal
interview, 25 August 2008, Penang). The importance of quality performance was displayed
by Supplier 1 for example who had won quality assessment awards from customers such as
ST Microelectronics, Agilent, AMD and Fairchild. Similarly, the director of Supplier 2 felt
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customers only cared about price which was becoming the competitive factor in the PCBA
industry (Supplier 2 Director, personal interview, 12 August 2008, Penang). Customer
scrutiny would not have been possible for Supplier 2 who was anonymous to its customers.
Supplier 2 shipped its products through a manufacturer representative where customers are
identified by an internationally recognised code thereby making customer-supplier relations
impossible. It was only through legislation such as the EU Directives RoHS and WEEE that
customers were forced to require governance requirements of suppliers down the GPN.
However, this applied only to those suppliers that produced PCBs for final products entering
the final market of the EU, which was the case only for Supplier 1, Supplier 3, and Supplier
4.
Indeed, a lack of resources among the different SMEs was a significant factor
limiting the ability of these suppliers to engage in more governance activities. Supplier 2
and Supplier 3 – two Malaysian SMEs - pointed out that “price, quality and prompt
delivers” were what this group of firms focused on (Supplier 2 Director, personal interview,
12 August 2008, Penang).
The two suppliers that engaged in the most governance activities were the largest
firms of the group with headquarters and major manufacturing sites located in Penang. They
were Supplier 1 and Supplier 4, which were both MNCs in their own right and with
manufacturing sites in several countries. While both of these suppliers may have had more
resources to engage in governance activities – for example, Supplier 1 had the largest
governance team amongst the group - they may have also received more pressure from their
customers to comply with international standards. Supplier 1 and Supplier 4 had large key
customers in the computer industry which included top suppliers to HP. For example, ST
Microelectronics – a large first tier supplier to HP – had requested that Supplier 1 complied
with ISO 14001. Supplier 4 faced pressure from Danish customers to obtain the OHSAS
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18001 certification. The two suppliers were also publicly listed companies. Being a more
transparent company may also have played a role in their greater governance engagement.
The SD Director of Supplier 4, for example, explained that being a publicly listed company
meant it had to undertake careful assessments of its compliance to standards. These features
set Supplier 1 and Supplier 4 apart from the other second tier suppliers.
With weak or lack of private governance mechanisms reaching down the GPN to
second tier suppliers, one might expect government regulations to step in to fill the private
governance gap. However, implementation and enforcement of the OSHA was weak or even
absent for many of the suppliers. Only three (Supplier 1, 4 and 5) out of the seven second
tier suppliers had a SHO. The remaining four suppliers were exempted from the requirement
due to their small size of having less than 500 employees (see Chapter 8 for more discussion
on the Malaysian OSHA).
Most of the smaller suppliers that were exempted from the SHO requirement
reported OSHA to be an easy legislation to follow that was not always enforced. The only
exception was Supplier 3, which complained of unannounced visits by DOSH and the
issuance of hefty fines over breaches it did not understand. The supplier felt DOSH was too
stringent and non understanding of the difficulties of running a SME. The manager of
Supplier 3 complained of having to learn the OSHA on its own and would have liked DOSH
to provide more assistance with understanding the regulation. Also quite different from the
experience of the smaller firms, the SD Director of Supplier 4 – a larger firm in the group –
felt government regulations for business in general including OSHA were enforced more
strongly for larger companies.
Without SHOs or government agencies providing much assistance in governing
health and safety concerns for the smaller firms, the suppliers had to rely on its managers to
learn how to implement the OSHA on their own, which consisted mainly of worker training
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for small firms. This was in stark contrast to the first tier suppliers which had trained and
experienced SHOs responsible for the different governance activities within the firm. The
self-taught outcome of health and safety governance by some managers, however, revealed
questionable understanding of and hence governance over chemical and health hazards.
The managing director of Supplier 2 (who completed the two year UNEP “Green
Environment” course), for example, was solely responsible for the health and safety
governance activities within the firm. He provided training to workers on the harm of
production activities which consisted only of identifying lead from lead-free substances
based on chemical labels. The director felt only leaded substances were hazardous and
therefore did not provide training on other chemicals. During the interview, the director
spoke of his scepticism over whether fumes from soldering (which can involve the use of
lead) were in fact dangerous. According to him, because flux (a paste placed on the surface
of the printed circuit board to improve the effects of soldering and prevent oxidation) is
made from “rosin that comes from trees” he felt it was safe for workers to work with. While
rosin fluxes are made from pine tree gum, their fumes contain chemicals that can cause
health problems such as asthma and dermatitis (Worksafe Western Australia Commission
2000). Workers at Supplier 2 were given filter masks and cotton gloves as personal
protection equipment. The director also stated workers did not put their hands in the
cleaning fluid which contained isopropyl alcohol, implying cotton gloves were sufficient
protection. It should be noted that the use of cotton gloves during PCBA is an industry
standard to ensure oil and dirt from fingers do not contaminate the surface of the boards.
They were not used to prevent contact from hazardous substances. In other words, cotton
gloves are unable to protect against exposures to liquid chemicals. The director also felt
their activities were not as harmful compared to the more chemically intensive activities of
larger companies and in particular plants that undertook PCBM which required more
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chemical usage (Supplier 2 director, personal interview, Penang 2008). According to the
director, suppliers to larger companies used recipes provided by their customers that
involved more chemicals. Supplier 2 was said not to be dictated by customers on its
chemical usage and used only one to two types of fluxes and Isopropyl Alcohol.
Similar views were shared by the manager of Supplier 3. Also self taught on the
health and safety aspects of the firm’s production activities, the manager felt the amount of
lead in PCBs was insignificant when compared to a battery. As a result he felt PCBs did not
contribute significant amounts of lead into the environment as a waste product. The manager
also felt chemical exposure to workers was not significant because most of it goes into the
product itself and is not released into the environment. This contradicts LaDou (2006) that
shows the various chemical exposures workers face in the PCB industry.
What several of these second tier suppliers share with first tier suppliers, however, is
the implication of worker behaviour in health and safety conditions. According to the
manager of Supplier 3 a lot of health and safety conditions “comes down to how employees
will actually follow the health and safety rules and regulations themselves and being
mindful to the work that they are associated with. A lot of times injuries happen not because
the company system has not enforced health and safety but rather a just simple point of
being careless” (Supplier 3, personal interview, Penang, 2008).
The SD Director of Supplier 4 was also interested in changing the attitude of
workers. When discussing reasons for why the ISO 14001 certification was obtained
voluntarily, the SD Director stated, “I want to do it to change [the] attitude of [the] people”.
Showing workers how to care for an oil spill, for example, “can enhance that kind of
behaviour to do the better quality”. Further, with regards to obtaining OHSAS 18001 the SD
Director did not care much about it preventing injury or cuts to fingers but rather to
standardise the “look” of different plants. “I want to see the plants look alike. You can see
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the chair I have blue, in the next one the chair a different colour, which I personally don’t
like. I want to see bright offices, same colour, same chairs, [it can] mould the kind of
people’s characters in the long run”. It was also added that spending money on health
screenings for workers were to “make them feel good that someone cares [about them]”
(Supplier 4 Strategic Development Director, personal interview, 28 August 2008). The SD
Director did not mention whether OHSAS 18001 does in fact safeguard the health and
safety of workers at the manufacturing site.
The SD Director also found the perceptions of top management important for taking
safety issues seriously. The SD Director had worked for German, American and local
companies and felt he had learned the importance of firm leaders having the right perception
and understanding on EHS. The company president, for example, was said to have such a
perception from travelling the world three to four times a year and learning new approaches
which was said to affect his positive attitude on EHS. It was not about education, according
to the SD Director, because “you can have a person who will never understand books but he
knows safety... it’s the perception”. (Supplier 4, Strategic Development Director, personal
interview, 28 August 2008, Penang).
While managers of supplier firms showed weaknesses in their knowledge and
understanding of health and safety they were however apt in pointing out the limitations of
international standards. The manager of Supplier 3, for example, explained that “ISO has
nothing to do with health and safety though. ISO is more of to actually help people to do
monitoring...” (Manager of Supplier 3, personal interview, 25 August 2008, Penang). The
SD Director of Supplier 4 found “[OHSAS] 18001, [ISO] 14001 does not influence does not
affect any of the business. It does not. Even if you fail it today you have to find a time to put
an action plan.” The environmental, health and safety standard was not like the automotive
standard where “if you fail it that means you cannot bid for new business. So 18001, there’s
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no severity. It’s just like our wish list to have” (Supplier 4 Strategic Development Director,
personal interview, 28 August 2008, Penang). He used an analogy to explain why the firm
followed the standard without questioning it: “[If there] is like speed limit 110 kilometres
we follow 110 kilometres. Whether safe or not, we don’t know. You ask me safe or not, I
don’t know but we follow”. The SD Director could not say whether all environmental risks
could be mitigated through ISO 14001. According to the SD Director, to ensure
environmentally safe outcomes required a lot of resources, “You want your work to look
cleaner, you put money it becomes clean”. The SD Director used Shell – one of the largest
MNCs in the world - as an example of a firm that can accomplish such a task. Firms outside
of this league, it was implied, could not have a major impact on their environmental
footprints (Supplier 4, personal interview, 28 August 2008, Penang).
Despite the various limitations, several suppliers nevertheless found some benefits
from standards and regulation mainly their positive impact on business prospects and
performance. The manager for Supplier 3 felt meeting regulations and standards on health
and safety important because a healthier workforce meant better performance. In the past
before the OSHA regulation was in place workers were ill more frequently. The SD Director
of Supplier 4 found implementing standards and receiving regular audits led to continual
improvements because assessment results could never find a manufacturing plant without
any problems. It was noted that the management of Supplier 4 liked to see audit results that
pointed to issues that required further observation or improvement, such as checking safety
devices regularly and other types of maintenance activities. These actions, despite how
minimal they were, helped fulfil the objective of meeting obligations of environmental,
health and safety responsibility by the firm. The SD Director also found standards helped
the firm communicate more easily with other firms. By being certified to international
standards, European customers did not need to ask many questions about Supplier 4’s
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operations. Instead, customers could simply ask to see the certification or third party audit
results and be assured of the environmental, health and safety performance of the supplier,
noted the SD Director. Moreover, because the ISO standards followed a systems
management approach, the SD Director found it useful from a business perspective. One can
know the input and output of the system whether it be the financial system, the purchasing
system, or the environmental, health and safety system. “If something goes [wrong] it is
only a small deviation not a gross mistake where, you know, we have to be jailed or
whatever. It is an indicator you have [to do something] to before it get[s] worse” (Supplier 4
Strategic Development Director, personal interview, 28 August 2008, Penang). Similarly,
the SHO of Supplier 1 felt regulations and standards provided a systematic approach to
monitoring and auditing in addition to keeping the company on its toes and always
conscious of the issues.
4. Conclusion
Like the previous chapter on first tier suppliers, this chapter answered the three main
research questions with regards to second tier suppliers in Penang. They are:
i. What private governance mechanisms are used for safeguarding
environmental health and safety in the personal computer global production
network?
ii. How are these health and safety governance measures implemented through
inter-firm relations amongst the various tiers of suppliers in Penang, Malaysia?
iii. How do firm and non-firm actors affect the health and safety governance
practices at the supplier sites in Penang, Malaysia?
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With regards to research question (i), this chapter provided detailed information on the
profile of the second tier suppliers interviewed and the occupational health and safety
governance activities they were undertaking. Several key trends and commonalities were
discussed, some of which were compared and contrasted with the experience of first tier
suppliers.
The GVC framework was again limited in use for fully addressing research question
(ii). The GVC framework defines governance relationships between lead firms and first tier
suppliers. The expectation of the GVC concept is that the governance relationship
established at the top of the chain between lead firms and first tier suppliers would have a
bearing on the inter-firm relationships in the lower tiers of the supply chain. This was
certainly the case for some second tier suppliers who were supplying to GPNs lead by firms
that sold products in the EU and as a result were in compliance with the EU Directives
RoHs and WEEE. Indeed, the final markets of lead firms had an influence in shaping the
governance activities in lower tier suppliers of the GPN. This also suggests the importance
of regulations in the final markets for driving governance down a GPN.
Similar to the findings in the previous chapter, second tier suppliers had minimal
direct relationships over the governance of occupational health and safety with their
customers or first tier suppliers. While some customers audited suppliers on quality, none of
the second tier suppliers were audited or inspected on their occupational health and safety
conditions (see Table 7.1). This suggests that first tier suppliers placed a low priority on the
occupational health and safety conditions of second tier suppliers. First tier suppliers were
not exercising their power over their (second tier) suppliers when it came to occupational
health and safety. Even a governance instrument such as the EICC, which was created to
increase inter-firm governance relationships down the GPN, was completely absent from
this group of second tier suppliers.
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A GPN perspective is used to answer research question (iii), which shows that there
is more to the picture than only inter-firm relationships in governance processes. Because
second tier suppliers fall into a private governance gap over occupational health and safety,
the chapter also looked into whether non-firm actors such as the state and CSOs and labour
unions were able to help fill in the gap. Unfortunately, the findings show a weak picture of
regulatory enforcement by the Department of Occupational Safety and Health and
compliance of the Malaysian legislation on health and safety was also absent by many of the
smaller suppliers. Thus, many second tier suppliers also fall into a public regulatory gap.
This is a particularly important finding given that it is the lower tiers of suppliers that
normally face more difficulty in meeting standards and codes and as a result require more
assistance in governing health and safety of their workers. A key finding of this case study,
therefore, is that the societal embeddedness of second tier suppliers in Penang is one
characterised by the inability of the Malaysian state to play a significant role in their
governance performance. The next chapter on the Malaysian regulatory agencies and
enforcement of the national health and safety legislation will discuss and explore the reasons
behind this local outcome in more detail.
Engagement with non-firm actors such as CSOs and labour unions was also missing
from this group of suppliers. None of the second tier suppliers interviewed received pressure
from these non-firm actors. Part of this is to do with weak local CSOs in Malaysia and the
lack of attention paid by the more capable and resourceful Western based or international
CSOs on the electronics industry in Penang. Thus, the governance performance of second
tier suppliers were not investigated or known and more importantly was not being elevated
to the global scale of campaigning activity by more capable and resourceful CSOs. This
issue is explored in more detail in chapter nine.
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In conclusion, the second tier suppliers in this case study fell into an overall
governance gap or vacuum. First tier suppliers had not exercised their power over the
second tier suppliers to enforce occupational health and safety standards, the state did not
alleviate the governance gap with regulatory oversight, and CSOs and labour unions could
not exercise a networked form of power to campaign for improved governance at this lower
tier of the GPN. As the findings in chapter nine show, the latter is partly due to the exercise
of power by the Malaysian state to ensure the electronics industry is protected from external
pressures. Thus, the power concepts of ‘power over’ and ‘power to’ were not applicable for
analysing the forces shaping the governance practices of the second tier suppliers. There
was a void of these power relationships at this lower tier of the GPN.
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CHAPTER 8
REGULATING HEALTH AND SAFETY IN MALAYSIA:
THE STATE PERSPECTIVE
1. Introduction
As the previous chapter on the governance experience of second tier suppliers revealed,
there is a lack of private governance mechanisms reaching this group of lower tier firms in
Penang. The question then arises as to whether government regulation and regulatory
agencies concerned with health and safety in Malaysia are capable of filling in this
governance gap. This chapter aims to address this question by assessing the Malaysian
Occupational Safety and Health Act of 1994 (OSHA) and the key government agencies
involved in its implementation -- the Department of Occupational Safety and Health
(DOSH) and the National Institute of Safety and Health (NIOSH). In doing so, it aims to
also address the research question: How do firm and non-firm actors affect the health and
safety governance outcomes at the supplier sites in Penang, Malaysia?
The chapter proceeds as follows. Section 2 describes the historical development of
the OSHA legislation, which was shaped by the British legislation on health and safety and
its principle of self-regulation. The discussion also outlines its differentiated enforcement
requirements for large firms versus small firms and by industry. Section 3 describes and
discusses the role and activities of DOSH, the regulatory agency responsible for enforcing
OSHA, and NIOSH, the agency responsible for assisting firms better understand health and
safety in the workplace through training and research and development. This section also
reports on the specific experiences first and second tier suppliers interviewed in Penang
have had with DOSH, which point to a set of weaknesses and shortcomings in the
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functioning of the regulatory agency. Interview findings with senior officials at DOSH and
NIOSH also tend to support the claims made by the firms. In particular resource limitations,
the perception of the electronics industry as clean, a general lack of knowledge on
occupational health and safety, and conflicting priorities between protecting small
businesses from increased international competition versus enforcing local OSHA
requirements are key factors contributing to the weak regulatory performance over health
and safety in Penang. A final sub-section assesses the implication of the self-regulatory
principle of the OSHA and its compatibility with the state of knowledge and capacity of
firms in Penang to improve health and safety in the workplace. Section 4 concludes the
chapter.
2. History of occupational health and safety legislation in Malaysia
The first legislation in Malaysia to consider occupational health and safety was the
Machinery Ordinance of 1913, during British colonial rule, which specified safety measures
for machines and in particular boilers and internal combustion engines. The Machinery
Ordinance was replaced in 1967 by the Factories and Machinery Act (FMA). The FMA was
mainly concerned with the proper functioning of steam/pressure valves or boilers in
factories. In 1970 a set of Safety, Health and Welfare Regulations were developed. These
new regulations were created at a time when the country began moving towards more
manufacturing and away from agriculture. The rise of new industries demanded legislation
that could handle its accompanied and new health and safety concerns.
The FMA is a prescriptive legislation that requires government inspectors to
regularly enforce, through physical inspections, the compliance of factories. However, as
Malaysia began facing soaring numbers of new industries from the mid 1970s onward
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enforcement of the FMA began facing serious challenges during the 1980s. Workplaces had
become more diverse and new hazardous substances were being introduced in the
manufacturing sector. It was during the 1980s that legislation on long term exposures to
hazardous substances was passed. A host of additional legislation was passed during the
1980s that included the Lead Regulation 1984, Asbestos Process Regulations 1986, Mineral
Dust Regulations 1989, and Noise Exposure Regulations 1989. These regulations were the
first to include occupational exposure limits based on international standards. They also
required exposure monitoring and medical surveillance of employees (Rampal and Nizam
2006; MTUC website 2010).
Also during the 1980s government agencies began to face a lack of resources to
undertake inspections of the growing number of factories. These constraints were attributed
to the prescriptive nature of the FMA and its reliance on a command and control approach
that placed all burden on government to enforce and ensure compliance to the legislation
(interviews 2008, MTUC website 2010). These limitations were compounded by the need
for safety and health measures for non factory workers and led to the creation of the
Occupational Safety and Health Act in 1994 (OSHA) (DOSH and firm interviews, 2008;
Soehod and Laxman 2007).
The OSHA is “to promote and encourage occupational safety and health awareness
among workers and create effective safety and health measures” (DOSH website 2010).
OSHA, unlike the prescriptive FMA, is a flexible legislation premised on the principle of
self-regulation and worker cooperation and participation. OSHA was modelled after the UK
Health and Safety at Work Act (HASAWA) of 1974. One of the key tenets of HASAWA
and the Malaysian OSHA is the principle of self-regulation. The self-regulation principle
was based on a report commissioned to Lord Alfred Robens in 1972, referred to as the
‘Robens Report’, which dramatically changed the thinking on health and safety in the UK
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by placing responsibility on industry rather than government (Dawson et al. 1988). In the
Robens Report, the role of government was stated to “be predominantly concerned with
influencing attitudes and creating a framework for better health and safety organisation and
action by industry itself” (emphasis added) (Robens Report 1972: 7) The report proposed a
“goal setting approach rather than the existing prescriptive legislation... workplaces now
needed practitioners who were able to interpret and recommend good practice rather than be
'policemen' of prescribed standards as previously. This required changes in the way health
and safety practitioners needed to be trained and their competence assessed, and to the
development of some national standards of health and safety practice” (Faupel and Harvey
2002).
The principle of self-regulation within OSHA was often emphasised by the
suppliers, DOSH and other government officials interviewed. The EHS Consultant at CS4,
for example, explained the self-regulatory OSHA meant controls and mechanisms were
“practice[d] whenever reasonable and practicable... if not, we don’t do it” (EHS consultant,
CS4, personal interview, 2008). A version of a quote from the Robens Reports was also
often recited by government officials and appeared in several government documents on
occupational health and safety: “The responsibility of doing something about safety and
health lie with those who create the risks and those who work with the risk”. To further the
flexibility of the OSHA legislation, many of its requirements are qualified by “so far as is
practicable” (Soehod and Laxman 2007). OSHA places three key obligations on firms based
on their size and industry. The first obligation applies to all industries and obliges employers
to establish a Safety and Health Policy in workplaces with more than five persons. Second,
all workplaces with more than forty persons must establish a Safety and Health Committee.
Workplaces with less than 100 workers must have at minimum two representatives each for
workers and managers. Workplaces with more than 100 workers must have at minimum
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four representatives each for workers and managers. Third, depending on the type of
industry and size of the firm, a certified SHO must be employed or be on the payroll of the
firm. For example, for the electronics industry a SHO is required if a workplace has more
than 500 employees, in the metalworking and woodworking industry if the workplace has
more than 100 workers, and in the construction industry if the project is worth over 20
million ringgit (around 5.6 million USD) (DOSH interview 2008). The OSHA then exempts
small and medium sized enterprises (SMEs) from a substantial portion of its requirements in
the electronics industry.
Beyond these specifications, the OSHA legislation was vague and general on how it
was to be implemented. According to a senior DOSH official, because the self regulatory
concept allowed for creativity “there is not only one way, there are many ways” to
implement OSHA. He noted that the main clause of the legislation is “to ensure the safety
and health of your workers. How to ensure it we leave it up to you. Hazards may be
different but how you manage the hazards is the same” (DOSH personal interview, 2008).12
According to a NIOSH official, employers were to fulfil their responsibility by developing
and carrying out management systems similar to the ISO 9000 for health and safety in the
workplace. This lack of specificity, however, left firms, particularly smaller firms, unclear
on how to implement OSHA (NIOSH interview; firm interviews, 2008).
In response to this general lack of understanding by firms on how to implement
OSHA, the government developed a series of additional regulations and guidelines to help
clarify parts of the Act. From 1995 to 2005, there were 27 regulations and guidelines
enacted (see Table 8.2) (Soehod and Laxman 2007). Some of these regulations and
guidelines were more prescriptive in nature and incorporated international standards and
occupational, safety and health laws from other countries. Some of the key guidelines were
12 There is a similar approach taken by regulatory in the United States, see Dunn 2007.
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instituted only many years after the OSHA legislation was passed in 1994, which left a long
period of inadequate implementation by firms. For example, the Notification of Accidents,
Dangerous Occurrences, Occupational Poisoning and Occupational Diseases, which instruct
employers on how to notify and keep records of work related accidents, poisoning, and
occupational disease occurrences and immediately report fatal and serious accidents and
dangerous occurrence to DOSH, was circulated only in 2004. The Use and Standards of
Exposure of Chemicals Hazardous to Health Regulations (USECHH) regulation, which sets
permissible exposure limits for hazardous chemicals – many of which are based on the
Threshold Limit Values set by the American Conference of Government Industrial
Hygienists - was released only in 2000 (Rampal and Nizam 2006).
The Malaysian government has been accused of rushing to pass the OSHA without
fully understanding how to implement such a regulation in order to portray a country
progressing towards a modern industrialised state (Malaysian labour activist, personal
interview, 2008). Rampal and Nizam (2006: 132) affirm this perception by stating the
OSHA was “necessary and consistent with the trend of legislation development in
industrialised countries to face challenges of the new millennium” (see also Dunn 2007).
Table 8.1 List of regulations and guidelines that accompany the OSHA 1994 (non exhaustive list)
Regulations Year
Employers’ Safety and Health General Policy Statements 1995
Control of Industrial Major Accident Hazards 1996
Safety and Health Committee 1996
Safety and Health Officer 1997
Classification, Packaging and Labelling of Hazardous Chemicals Regulations 1997
Prohibition of Use of Substance Order 1999
Use and Standards of Exposure of Chemicals Hazardous to Health Regulations
(USECHH)
2000
Notification of Accidents, Dangerous Occurrences, Occupational Poisoning and
Occupational Diseases (NADOPOD)
2004
Guidelines
Monitoring of Airborne Contaminant for Chemicals Hazardous to Health 2002
Occupational Vibration 2003
For NADOPOD 2005
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The prescriptive FMA however is still enforced alongside the OSHA. Given its
regulations on lead, asbestos, mineral dust and noise exposure, FMA is still quite important
for safeguarding health and safety in the workplace. The senior official at DOSH found the
FMA still more “important for compliance because everything is spelled out” which is the
reliance on government to tell companies what to do (DOSH director, personal interview,
2008).
3. DOSH, NIOSH and the enforcement of OSHA
A. Department of Occupational Safety and Health
The Department of Occupational Safety and Health (DOSH) in Malaysia was created in
1994 with the enactment of OSHA. Its main objective is to prevent industrial accidents and
occupational diseases through the enforcement of OSHA 1994, the Factories and Machinery
Act 1967, and parts of the Petroleum Act 1984 that pertain to safety measures. According to
its website, DOSH undertakes an extensive set of activities that include formulating
standards, performing promotion and communication activities to raise awareness of
occupational safety and health, and enforcing regulations. Its standards formulating
activities include drafting and reviewing policies, laws, codes of practice, guidelines on
occupational safety, health and welfare, and regional and international standards in a
tripartite process (Rampal and Nizam 2006). For promotional activities, DOSH holds
seminars and invites firms that have good OSH management systems and performances and
industry groups like the Federation of Malaysian Manufacturers to discuss and share
insights into best practices of health and safety. There are also around 40 training sessions
per year organised either by DOSH or NIOSH often with experts from other countries that
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share their knowledge and experiences on health and safety (DOSH personal interview
2008). Its enforcement activities include approving machinery designs, installations and
repairs; providing accreditation; registering factories and work sites; inspecting machinery
and work sites; and conducting investigations and legal proceedings against violations
(DOSH website).
In 2008, DOSH Penang had 62 employees, 50 of which were technical staff
responsible for inspections, investigations, and other enforcement and promotional
activities. According to the senior official at DOSH Penang, the OSHA does not oblige
regular inspections. The FMA on the other hand does mandate inspection of factories every
fifteen months. It is during the FMA inspections that DOSH officials were said to also look
into OSHA compliance. These OSHA inspections were said to be pre-announced and
inspectors looked for whether there was a safety policy in place, a functioning safety
committee, safety officers (where applicable) and proper work procedures. The same
general inspection checklist is used for all industries and factories. DOSH was also
supposed to conduct audits on occupational safety and health management systems at firms
however in practice they were rarely done, according to the DOSH senior official. The only
few times DOSH Penang audited firms were for the annual National Occupational Safety
and Health Excellence Award. Firms that nominated themselves for the award or firms
whose factories DOSH considered fit for the award were audited to decide on the winner.
Thus, the only firm audits that seemed to take place were of factories that were performing
at their best (DOSH director, personal interview 2008).
According to its senior official, DOSH Penang had inadequate resources to enforce
OSHA because its employees were too busy enforcing the FMA. The official felt the agency
should outsource its inspections to the private sector the way it was done in Germany and
the United Kingdom. In fact, the Malaysian government had announced plans to privatise
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FMA inspections in 2000 though it had not yet been carried out noted the official (interview
with DOSH Penang 2008).
B. National Institute of Occupational Safety and Health
The National Institute of Occupational Safety and Health (NIOSH) was created in
1992 to promote occupational safety and health “that would serve as the ‘backbone’ to
create a ‘self-regulating occupational safety and health culture’ in Malaysia” (NIOSH
website). According to a manager at its Penang office, NIOSH undertook four main
activities. It provided training on occupational safety and health, which is stipulated under
OSHA and makes up about 65% of its work, followed by consultancy, information
dissemination and research and development. According to the manager, research and
development was not extensive and was mainly done at headquarters due to insufficient
resources (NIOSH manager, personal interview, 2008).
The NIOSH manager found training employers on the implementation of OSHA to
be quite challenging. OSHA stated that employers must provide a safe workplace without
risk. It was said many Malaysian firms generally did not understand the obligation. While
NIOSH was said to give step-by-step advice on how to formulate a safety and health policy
and objectives, and have in place the resources, manpower and budgets for OSHA, the how
of executing the policy required “vision” which is the nature of self regulation, noted the
manager (NIOSH manager, personal interview, 2008).
NIOSH also had a specific training programme on occupational safety and health for
contract workers in the electronics industry. It was originally developed at the request of
Intel in 1998. The programme, called the Contractor Safety Passport System, is used by
firms that have large numbers of contract workers. These firms were said not to want to
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expend additional internal resources for training contract workers that were not directly
employed by them. Intel, for example, was said to have had around 1,000 in-house
contractors in 2008. The Contractor Safety Passport System was available to any firm and in
2008 its users included (in addition to Intel) Silterra, Dell, Motorola, Renaissance
Semiconductor, AMD, Bosch, B Brown Medical, and Kobe Precisions according to the
NIOSH manager. It was also being used in other industries such as oil and gas and by firms
such as Petronas and Shell. The training was said to be paid for by the employment agencies
(NIOSH manager, personal interview, 2008). Other NIOSH training activities included a
special unit set up for SMEs in 1999 and a training programme for medical doctors to
become certified occupational health doctors (Jemoin 2006).
C. Factors contributing to weak regulatory performance over health and safety
i. Weak compliance
Data to assess whether OSHA has been effective is not systematically recorded and
as a result there are no official statistics on OSHA compliance for the country (Rampal and
Nizam 2006). The manager at NIOSH also found it difficult to obtain data on incidence
rates, which is collected by DOSH, for use in his own research for a Master dissertation
(NIOSH manager, personal interview, Penang 2008).
Several studies and polls, however, give a partial picture of OSHA implementation
in the early 2000s. NIOSH, in 2000, conducted a survey of 136 high technology firms and
found twenty two or 16% without the required Safety and Health Committees. Forty five
firms with committees were not very active and eleven were considered inactive (Leighton
et al 2003). The Malaysian Trades Union Congress (MTUC) carried out a survey among
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members of its affiliated unions (which excludes the electronics industry) in 2001. Of the
262 companies that responded, 26% were without an OSH policy, 40.5% did not implement
the OSH policy, 32.4% did not have a OSH committee, 30.2% did not have workers
represented in the safety OSH committee, 44.7% had only employers or management and
not employees as members of OSH committees, 52.3% found the OSH committee
ineffective, 31.3% did not inform their workers of OSH issues, and 51.1% did not provide
general medical examination for its workers (MTUC 2002). The study also reported that
where meetings did take place on OSH, they would concentrate on simple problems such as
lighting (MTUC: Safety panels a failure 2004).
ii. Weak enforcement and competence
First tier firms interviewed in Penang found DOSH lacking resources, staff,
proficiency, and competence in the OSHA legislation and on occupational health and safety
generally. The EHS Officer of CM, for example, found employees at the firm more
knowledgeable on OSHA than DOSH inspectors. Firms also found DOSH not enforcing the
law consistently amongst firms. The EHS engineer at CS1, for example, no longer received
DOSH inspections as a reward for being in strict compliance with the regulation for several
years. Chemical health risk assessments were also only conducted by DOSH when there
were complaints, according to the EHS engineer (CS1, personal interview, 2008).
DOSH was accused by almost all first tier suppliers interviewed of not adequately
enforcing OSHA on Malaysian SMEs.13 A few of the second tier suppliers interviewed also
reported that DOSH inspections were not comprehensive and focused only on one or two
issues. One supplier found DOSH inspections hurried and not lasting more than two hours.
13 One first tier supplier accused SMEs of bribing government auditors.
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Several first and second tier suppliers felt the inspectors did not have time to undertake
thorough checks (firms, personal interviews 2008).
According to a private occupational health doctor in Penang that assisted firms with
their compliance to OSHA, part of the weak knowledge base on health and safety by DOSH
officials was due to the majority of its officers being engineers. Indeed, according to the
DOSH Penang senior official most of the degree-holding employees at DOSH were
chemical, civil and electrical engineers and did not include occupational health experts or
professionals (DOSH Penang senior official, personal interview, 2008). As a result, DOSH
was said to focus more on safety than occupational health (Occupational health doctor,
personal interview, Penang, 2008).
More striking amongst the interview findings was the acknowledgment and
acceptance by several firms, government officials, and the occupational health doctor of the
difficulties SMEs faced with implementing OSHA. It was thought to be particularly
challenging for SMEs in a highly competitive electronics industry that faced a high rate of
factory relocations to lower cost neighbouring countries in recent years. Regulatory agencies
were seen not wanting to place additional burdens on SMEs with the compliance of costly
governance measures like OSHA. Even the Deputy Chief Minister of Penang knew well that
local firms were not complying with the OSHA Act and described the situation as a
“disaster” (Deputy Chief Minister of Penang, personal interview, 2008). This outcome
reflects dilemmas of a postdevelopmental state as set out by Ong (1999a, 2000)
characterised by conflict in the priorities of maintaining competitiveness and enforcing
regulation that may compromise the former.
The weak implementation by SMEs of OSHA has in fact been recognised for many
years. In 2001, the then Chairman of NIOSH described the situation of weak OSHA
compliance by SMEs as a “well-known fact” (Thye 2001). The Chairman, emphasizing that
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SMEs were not exempt from OSHA or the FMA, proposed a mentor programme where
MNCs would share knowledge and give guidance to SMEs on OSH issues. The chairman
felt
“The role of large companies [is] to dictate or pre-qualify their vendors before they
are accepted to do business with them... [there] is a crucial role of large industry... to
assist the SMI (small and medium institutes) to upgrade their safety and health
standard” (Thye 2001).
A similar mentor-mentee programme had been implemented by DOSH Penang since 2001.
It has been not very successful however with participation from only a small number of
MNCs, according to the senior official at the agency. The DOSH official suggested that
MNCs did not care whether their subcontracted SME suppliers complied with OSHA.
MNCs were said to inspect their vendors/suppliers only on quality, delivery, and other
business related matters. It was noted that even though MNC inspections did not focus on
OHS, the firms would still get a sense of any poor safety and health conditions at the
supplier sites. However, MNCs were said to have never approached DOSH with concerns
over their suppliers or requested assistance for improving supplier compliance of OSHA
(DOSH Penang, senior official, personal interview, 2008).
Nevertheless, DOSH seemed to rely on MNCs to help increase OSHA compliance
by local SMEs. A DOSH programme for SMEs was proposed called ‘Enhancing the
Standard of Occupational Safety and Health’ which was to require MNCs and other large
buyers to include and consider OSH clauses and obtain management commitment to OSH in
their contracts with SME vendors. MNCs participating as mentors to SMEs would be
recognised with certificates, plaques, and flags from DOSH and the National Council for
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Occupational Safety and Health. The programme also included a loan incentive programme
encouraging creditors to include and make contingent OSH provisions, for example top
management commitment to OSH standards, in their loan agreements with SMEs. Awards
would also be given to SMEs based on their OSH management systems, accident and
incidents reports, compliance with OSHA, and audit results conducted by DOSH inspectors
(SMI Business Directory 2008).
iii. Weak knowledge on health and safety
Among officials in government agencies in Malaysia, such as DOSH and the
Ministry of Health, there was a view of the electronics industry as clean and modern that
was similar to the perception held in the United States during the 1980s (before the leaks of
underground toxic waste storage by electronics firms in Silicon Valley, California). A
doctor from the Ministry of Health in Penang that specialises in occupational and
environmental health described electronics factories as air-conditioned and being “cleaner
than your house”. The doctor noted he was unaware of the chemicals used by factories in
the industry because such information was not made public. However, the doctor felt the
industry was not too chemically intensive and therefore found the electronics industry
generally low risk when it comes to OSH conditions. According to the doctor, because the
industry was dominated by foreign workers who were given only three year contracts, were
young, and forbidden from becoming pregnant, there was no risk these workers would
experience chronic exposure to hazardous chemicals (Ministry of Health-Penang, personal
interview, 2008).
A similar perception was held by the DOSH Penang senior official. The official
found the industry not associated with many diseases because it was “very clean... [The]
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floor is very clean and they control air quality because that will affect their product... [There
are also] no serious accidents, [they are] very rare in electronic factories”. Fatality and
accidents that cause immediate bodily harm were considered key signs as to whether an
industry had a high occupational safety and health risk by the official. The effect of
exposure to hazardous chemicals was not factored into his risk assessment. The official used
the low number of fatalities in the industry to describe how safe it was, which was unlike the
steelwork and woodworking industries. The official furthered his claim on the low dangers
of the electronics industry by reporting that in the year and a half he had been in Penang,
there had only been one complaint – that of skin disease by a worker in a Sony plant.
Moreover, because the industry is dominated by foreign multinational corporations, they
were thought to employ good safety and health standards based on American standards and
practices. (DOSH Penang, senior official, personal interview, 2008).
However, when pressed on the issue of chemical usage in the electronics industry,
the DOSH official acknowledged there were dangerous chemicals and “some radiation”
used by firms. According to the official when it came to problems in the PCB industry they
were mainly a concern amongst, which were said to dominate the industry. It was said
SMEs were less likely to comply with regulations. It was noted small workshops in
particular used a lot of machinery and there was also use of lead by some firms. Some firms
were said not to monitor worker exposure levels to lead. The official was also aware small
firms did not always provide personal protective equipment to its workers or have
engineering controls in place.
While the DOSH official pointed to SMEs being resistant to complying with OSHA,
he also noted that most of these firms were generally unaware of safety and health issues.
SMEs were said to be “still learning and need DOSH to tell them” what to do and guide
them more with the law. Unlike large firms, which may have many engineers and a
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corporate headquarter deciding on policies and resources for health and safety, SMEs may
not have any or only one engineer or technical person handling safety issues, according to
the DOSH official. Clearly compounding this problem was the exemption of small firms
from having in place an SHO - though it was not discussed by the DOSH official.
There seemed to be generally very little research on industrial activity and OSH in
Malaysia. In 2008 the NIOSH manager found Malaysia still in the early stages of building
its competency on safety and health management. NIOSH, which was mandated to conduct
research on OSH had not been able to do so due to insufficient resources. The type of
technologies, experts and knowledge found in other countries like Japan, for example, were
not present in Malaysia noted the NIOSH manager. Sophisticated equipment that had been
bought by NIOSH remained unused because there were no qualified persons, for example
ergonomists, to operate them (NIOSH manager, personal interview, 2008). A Ministry of
Health doctor attributed the lack of government funding for research to Malaysia being a
‘small country’ with a small number of qualified persons with Master degrees or PhDs.
There was also a lack of comprehensive and historical medical records in the country
to assist with the diagnosis of occupational diseases (interview with private occupational
health doctor, Penang, 2008; Aziz Mohammed 2007). This lack of proper record keeping
fails to give an accurate picture of the occupational health problem in Malaysia – a concern
which was raised by the then Chairman of the NIOSH Datuk Lee Lam Thye in 1997 (More
occupational health doctors needed 1997). Some state that there has also been suppression
of information on health risks of the industry by government officials. The labour activist
also recalled a study that was conducted on reproductive health effects linked to the
electronics industry which resulted in the lead person of the study -- a civil servant – not
publishing the results because the information was felt to be too sensitive (labour activist,
personal interview, 2008).
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The private occupational health doctor in Penang also found it impossible to
undertake research on whether there was a higher incidence of cancer of other illnesses
amongst workers in factories or those residing in surrounding communities without relevant
health related data. The doctor also found there was a lack of occupational health doctors
generally in the country. Without such specialisation by doctors ailments from poor
occupational health conditions were diagnosed improperly and not linked to workplace
exposures. Doctors that were not specialised in occupational health that undertake worker
medical surveillances may not be aware of the links between workplace exposures to toxins
and disease noted the doctor. Further those occupational health doctors employed by firms
did not always report OSH related diseases because doing so might jeopardise their
contracts (Occupational health doctor, personal interview, 2008). As a result of these factors
there would be an under-reporting of occupational related illnesses which arguably
exacerbates the general lack of knowledge of OSH conditions in the country.
4. Conclusion
This chapter partially answered the key research question iii: how do firm and non-
firm actors affect the occupational health and safety governance practices at the supplier
sites in Penang, Malaysia? (The following chapter will complete this analysis with a
discussion on the role CSOs and labour unions have in this case study). From a GPN
perspective, the host state is an important actor that can affect the health and safety
governance processes and outcomes at the local scale in a GPN.
Understanding the state and society relational context of Malaysia and Penang shows
how societal embeddedness of a GPN results in particular outcomes for occupational health
and safety governance and why. The postdevelopmental state strategy of Malaysia is a
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complex one where the state selectively adopts neoliberal practices in the regulation of
society. For example, while the Malaysian state was able to attract foreign capital in the
electronics industry, as was discussed in Chapter 3, it had a more difficult time
implementing a modern occupational health and safety legislation – OSHA – which is based
on self-regulation of its small firms. This chapter discussed the various challenges faced
with enforcing the OSHA legislation. There was a lack of resources and weak knowledge
and competence research in occupational health and safety by DOSH and NIOSH. This was
compounded by a lack of occupational health doctors and research generally in Malaysia.
The lack of compliance of OSHA by second tier suppliers was due to several
reasons. OSHA’s principle of self-regulation was problematic because its flexibility resulted
in a general vagueness over its requirements by firms. SMEs that were exempt from large
parts of the legislation and suffered from resource constraints were said to face the most
difficulties in understanding how to implement OSHA and ensure proper health and safety
conditions in their workplaces. Also, without proper knowledge on health and safety by
DOSH and NIOSH (who also held the perception that the electronics industry is safe and
without great risk to workers) to pass on to firms, firms had to learn to implement the self-
regulatory OSHA on their own. Aptly the senior official at DOSH Penang pointed to a
significant weakness with the self regulatory approach noting that a self regulatory concept
works well in a context with “educated people with lots of knowledge... [and] sincerity” like
in developed countries (DOSH Penang, senior official, personal interview, 2008).
An important finding in this chapter was the wide acknowledgement that OSHA was not
enforced on SMEs stringently because regulatory agencies did not want to place additional
costly burdens on their business activities. SMEs, in particular in the electronics industry,
were struggling to stay competitive in the global industry. Thus, the low level of compliance
by SMEs was attributed to their struggles with competing on the world market. These
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findings further reflect the conflicting priorities of a postdevelopmental state. It can be
argued that the rushed passage of OSHA reflects the dilemma of multiple and conflicting
strategies of a postdevelopmental state. While Malaysia developed a modern legislation in
line with those in industrialised countries, it did not have the capacity or the willingness to
enforce it adequately and in particular to small suppliers in the country. OSHA was seen as
“necessary and consistent with the trend of legislation development in industrialised
countries” (Rampal and Nizam 2006: 132) (which may be tied to the Vision 2020 goal of
achieving industrialised economy status). However, it is plagued with challenges, dilemmas
and conflicting priorities that lead to gaps in regulatory enforcement, in particular over
SMEs which comprise the lower tier suppliers in the electronics industry GPN. This
dilemma with the host state had an important impact on GPN governance as the lower tiers
were largely left out of an occupational health and safety governance system.
To overcome the challenges, government agencies have implemented programmes,
funding opportunities, and training for SMEs, which have unfortunately not led to major
improvements in the situation. DOSH has also tried to incentivise MNCs to demand for
improved health and safety performance by their (SME) vendors or suppliers. This has
largely failed as MNCs were not overly concerned with the safety and health conditions and
regulatory compliance of their suppliers in Penang. This further confirmed the findings from
the previous chapters of the lack of priority first tier suppliers placed over the occupational
health and safety performance of second tier suppliers. The Malaysian state’s relationship
with foreign capital, which has been primarily concerned with attracting foreign investment
through lax regulations, the provision of workers, and suppression of labour unions, has not
been able to enter into what Posthuma (2010) called a “second generation” governance
model or hybrid regulatory structures and partnerships between government and MNCs.
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This chapter showed that the state has an important role to play in GPN governance.
In this case study, this was particularly important for second tier suppliers who had been left
out of the private governance system. Whether the state is able to shape the governance
outcomes of small firms is an important consideration when analysing how GPN
governance reaches lower tiers. Unfortunately government regulation and the regulatory
agencies in Malaysia generally failed to fill the governance gap faced by the second tier
suppliers in Penang – a key finding in this research. Therefore, in this case study, the role of
the state in occupational health and safety governance was weak. Its power dynamics with
MNCs failed to improve the health and safety performance of smaller suppliers. As the next
chapter shows, power by the state over local CSOs and labour unions hindered the ability of
these external actors to bring about changes to the governance practices at the local scale in
Penang.
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CHAPTER 9
THE ROLE OF CIVIL SOCIETY ORGANISATIONS AND TRADE UNIONS IN
THE GLOBAL AND LOCAL CONTEXT
1. Introduction
The poor environmental, health and safety conditions of suppliers in the electronics
industry GPN has been exposed by civil society organisations (CSOs) for many years. CSO
campaigns aim not only to raise awareness of dire working and environmental conditions in
far away manufacturing sites that are normally hidden from consumers and the general
public but to also shame brand firms at the top of GPNs in order to raise public pressure to
improve the situation. When it comes to the electronics industry, challenges of governing its
GPN are well documented and recognised by civil society organisations (CSOs) and trade
unions (Holdcroft 2009; Astill and Griffith 2004; Chan and Peyer 2008; Schipper and Haan
2005; Watts 2010).
This chapter examines the interactions of CSOs and trade unions with the electronics
industry at the global level and the national/local level in Malaysia. It aims to show the
greater involvement by global or Western CSOs and trade unions with the electronics
industry in comparison to the national/local level CSOs and trade unions in Malaysia. This
is due to restrictive government actions against CSOs and trade unions in Malaysia and a
greater emphasis by global or Western CSOs in campaigning against branded firms at the
headquarter level (that are largely removed from the local situations of far away outsourced
locations such as Penang, Malaysia). Despite the greater engagement by global or Western
CSOs with the lead firms improvements to labour conditions and rights in the industry
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namely through the incorporation of the ILO core labour conventions in the EICC has not
been achieved.
Section two of the chapter discusses the activities of the global CSOs and trade
unions engagement with the electronics industry. It focuses on members of the
GoodElectronics Network and their activities surrounding the EICC. Section two also
describes how the EICC was the result of a CSO campaign that exposed dire working
conditions in outsourced factories of major brand firms. Section three examines the civil
society and trade union conditions in Malaysia. This is a longer discussion on the context
and situation of contestation in Malaysia, a state whose past dealings with civil society and
trade unions are characterised by a relatively repressive regime. The remnants of historically
suppressive policies and actions are shown to still exhibit a weakened civil society
movement and the non-existence of trade unions in the electronics industry (though this has
changed with a new policy on regional unions for the industry in 2010). The more recent
policies and actions against these non-firm actors characterise the post-developmental state
strategy of Malaysia that is in line with producing social and political order that is partially
necessary for competing in the global economy (Ong 1999b). The section also provides an
informative glimpse into the situation of workers and the struggle to organise them by a
suppressed trade union movement. The concluding section four argues that the ability of
global CSOs and trade unions to bring about meaningful governance improvements is
limited by structural factors and firm and non-firm relations within the electronics industry
GPN.
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2. Contestation at the global level: the GoodElectronics Network and the
Electronics Industry Code of Conduct14
As discussed in chapter 5, a report released by the Catholic Agency for Overseas
Development (CAFOD) ‘Clean Up Your Computer: Working Conditions in the Electronics
Sector’ in January 2004 shook the electronics industry about the revelations of egregious
practices in outsourced factories in developing countries. The report revealed unsafe and
hazardous working environments and other worrying labour conditions.
The CAFOD expose resembled the ‘naming and shaming’ activities of the anti-
sweatshop campaigns of the 1990s. Many CSOs and trade unions that have remained critical
of the electronics industry are members of the GoodElectronics Network (GEN). GEN is a
large international network comprised of CSOs, trade unions, universities and individuals
concerned with human rights, labour rights and environmental impacts related to the
electronics industry. Many GEN members have been calling for improvements in the labour
and environmental conditions throughout the industry.
Since the introduction of the EICC, several GEN members have focused part of their
activities on improving the industry wide code of conduct. One of the key demands of GEN
members is to improve the labour rights standards in the EICC (Holdcroft 2009). The
existing EICC labour standards respects worker rights to ‘associate freely, join or not join
labour unions, seek representation, and join workers’ council in accordance with local laws’
[emphasis added] (EICC v. 3.0). Trade unions and CSOs have called on EICC members to
replace ‘accordance with local laws’ with the ILO Convention 87 on Freedom of
Association and Protection of the Right to Organise and 98 on the Right to Organise and
Collective Bargaining (van Dijk & Schipper 2007). 14 Parts of this section are from Raj-Reichert, G. (2011) The Electronic Industry Code of Conduct: Private governance in a competitive and contested global production network, Competition and Change, Vol. 15, 3: 221-238.
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Because of its global membership, receipt of government (Dutch) funding and
visibility, the EICC members considered the GoodElectronics network a powerful group
that should not to be ignored (CSHQ CR Director, personal interview 2008). However,
unlike individual EICC members like HP that has a long history of working with CSOs, the
EICC group has had a difficult time establishing a cooperative relationship with the GEN. In
2008, the EICC group attempted to create a Stakeholder Advisory Board to which several
GEN members were invited. This attempt for a dialogue, however, was collectively rejected
by the invitees. GEN members disapproved of the heavy handed approach of the EICC
members and felt its proposal for the Board too formal and controlling over the rules of
engagement. Since the failed attempt, the EICC group has re-evaluated its approach and
become more open to engaging with a few CSOs at a time (CSHQ CR Director, personal
interview, 2008). For example, EICC members have been partnering with individual CSOs
on projects on the extractives industry (EICC Annual Report 2009).
In 2009, in response to an invitation by several GEN members, a first meeting with a
few EICC members took place. The ‘Round Table’ focused on labour issues, mainly worker
rights, precarious work, and the vulnerability of migrant and women workers. The key
concern of GEN members was summarised in a report on the meeting as: ‘Freedom of
Association is still far from being realised; active obstruction of labour unions by companies
and governments is a common phenomenon’ (makeITfair & GoodElectronics 2009: 3).
Several CSOs found the Round Table exercise ineffective. EICC members,
according to one trade union representative, were fiercely opposed to the ILO Conventions.
Many firms were unabashed about their critical view calling unions useless and irrelevant
and questioning their contribution to firms. Some EICC members asked for evidence that
organised labour increased financial gains insisting management would need to quantify the
cost of compliance versus its benefits. An HP representative was also noted as being
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‘extremely critical’ of unions and placed cost savings as the highest priority for the firm
(GEN member, personal interview, 2008). The need for a business case for organised labour
is at odds with trade unions and labour activists who do not see the need for economic
justifications for labour standards but regard it as a human right. Firms also questioned the
need to include the ILO Conventions given it had not been ratified by all the countries their
suppliers were located in. It was also argued that cultural differences amongst countries
should accommodate for different labour practices. Instead of trade unions, EICC members
favoured in-house worker councils (makeITfair & GoodElectronics 2009).
The electronics industry has historically been largely without unions and employer
resistance against them has been strong (IMF representative, personal interview, 2008). It
was suggested the fierce anti-unionism stance taken by some US firms follows a long-term
American view of organised labour. This view was said to have also perpetuated throughout
the global electronics industry, which is still dominated by American lead firms. A quote by
Robert Noyce, co-founder of Intel Corporation
“remaining non-union is an essential for survival for most of our companies. If we
had the work rules that unionised companies have, we'd all go out of business. This
is a very high priority for management here”
is frequently used by industry critics to illustrate this point (Holdcroft 2009). Anti-unionism
in the industry is also tied to the need for efficiency and flexibility in production, and
control over pricing. Holdcroft (2009) emphasised the persistence of this ideology by
pointing to attempts by lead American electronics firms to redefine fundamental ILO
definitions pertaining to worker representatives and social dialogue at an ILO tripartite
meeting in 2007. Holdcroft (2009) argued that this non-union posture was still prominent
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today among the large firms driving the electronics industry GPN and is made evident by
the lack of unions in all the major information technology firms in the United States and the
continued resistance by the industry to engage in dialogue with trade unions. Further many
developing countries like Malaysia, which are host to all of the large computer industry
brand name firms and top five contract manufacturers, have historically prevented the
formation of unions in the industry (Holdcroft 2009).
The weak labour standards in the EICC do not solve a systemic problem of anti-
unionism and the different challenges to organising workers in the industry GPN. First, a
large percentage of workers in the industry are temporary, short-term, and hired by
employment agencies. This raises difficulties for appropriately designating employer
responsibility over workers. Additionally, short-term migrant workers who are in a foreign
country, for example with a two year contract, come with the goal of, as one Malaysian
labour activist put it, ‘earning money and leaving’. Migrant workers are not always
interested in a mechanism for solving grievances with their employers. The labour activist
noted that if workers became too ill, they simply felt they would recover after returning
home. They also do not generally feel part of a community that can be an important factor
for fostering an interest in organising. Second, the domination of this sector by young
female workers is a hurdle for unions that have traditionally been male dominated. Finally,
the vast amount of subcontracted production and use of parts and components that are
interchangeable amongst branded firms make it difficult to link lower tier suppliers back to
a specific lead firm (IMF representative; Hayter 2009; Holdcroft 2009).
Trade unions and CSOs see the electronics industry making the same mistakes as the
sweatshop industries of the 1990s by rejecting the ILO Conventions (Brown 2009).
However, along with the criticisms, there is also a sense of welcome by some of the more
active and engaged CSOs on the ability of firms to develop a governance initiative like the
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EICC on their own. This was the case for CSOs that have regular and close engagement and
(long) working relationships with branded firms like HP. The Interfaith Center on Corporate
Responsibility, for example, found it ‘too early to assess [the EICC’s] success, but they’ve
developed an industry approach that makes sense’ (Burrows 2006). As You Sow, a CSO
promoting corporate accountability saw the EICC as ‘a welcome step in developing an
industry approach to responsible practices in electronics supply chains’ (As You Sow,
http://www.asyousow.org/human_rights/electronics.shtml). Some GEN members felt the
code to be a positive ‘model’ or ‘idea’ from an efficiency point of view that aimed to reduce
the number of requirements and audits for suppliers (GEN members, personal interviews,
2008). One GEN member gave an honest explanation of its willingness to work with the
code in the following way:
“[for the] last twenty years, [we have been] asking for voluntary codes of conduct,
not laws or forcible legal sanctions... Union activists are upset by this because they
think voluntary codes prevents organised labour though they couldn’t come out and
say it because then they would in effect be supporting doing nothing. If voluntary
codes can improve worker conditions without unions then they should do so. Still
other activists find regulations best... however, there were laws against importing
sweatshop clothing but it could not be enforced. Laws don’t fix problems in a
globalised world. Though there needs to be both laws and groups pressuring firms.
Both are supportive because poor countries cannot enforce regulations even if they
are good. In absence of proper enforcement, if NGOs can get companies to do
something through corporate social responsibility in the short run, I’ll take that as
progress. It is a credible alternative to unions although ideally there should be
unions.” (paraphrased) (GEN member, personal telephone interview, 2010).
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While CSOs have been drivers and catalysts of the EICC, their effect on the
dynamics of its implementation has been weaker. In general the level of contestation in the
electronics industry in comparison to campaigns in other sectors is low (see Klooster 2005;
Munro and Schurman 2009; O’Rourke 2005). CSOs that have regular and close engagement
with brand firms have not engaged in fierce criticism for example by calling for a boycott
that may potentially jeopardise those established relationships. One CSO, for example,
wanted to give the firms a few years to ‘get themselves together’ and not ‘jump on them
right away’ on the EICC (GEN member, personal interview, 2008).
CSOs are focused on campaigning for brand firms to be leaders in the industry for
meeting higher standards and pulling the laggards up with them. Ted Smith finds this
strategy like ‘grasping at straws’ with exposure and transparency as the only tools they have
to make change though they continue to clash with the industry culture of secrecy (personal
interview, 2008). While these firms are more visible to consumers, they are however also
more powerful in collectively resisting calls for example to improve labour organising
throughout the industry. Indeed, targeting only brand firms can both shape and limit the
spaces of contestation within a GPN (Levy 2008).
3. Contestation in the local context: Malaysian civil society organisations and
trade unions
A. Government-civil society relations
The Malaysian government has historically had a negative and dominating
relationship with CSOs in the country. CSOs that threaten government plans and control
over economic development are regularly disrupted or repressed (Ramasamy 2004).
Government control of civil society became more authoritarian during the economic
slowdown of the mid 1980s (Case 2003; Ramasamy 2004). It was during this time that a
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government crackdown of “dissidents” on 27 October 1987, called ‘Operation Lalang’, led
to the arrest of over 100 persons that included political activists, labour activists, lawyers
and CSO members and the shutting down of several news agencies. Operation Lalang was a
response by then Prime Minister Mahathir to a growing threat of disintegration to his
political party. Mahathir was not unabashed of his critical views of CSOs during this time.
The government labelled CSOs that were critical of the government as being anti-
development/national, representing ‘special interests’, or influenced by foreign actors
(Mohd Sani 2009; Malaysian CSO representative, personal interview, 2008; Weiss 2002). In
the late 1980s, Mahathir described them as ‘thorns in flesh’ (Case 2003: 48). Even a non-
political Muslim group, such as the Darul Arqam, could not be protected from the state’s
controls. Leaders of Darul Arqam were arrested and the organisation broken up for its
critical views against state development projects it stated were un-Islamic for being
motivated by profit-making and individual gains (Ong 1999b).
There are currently in place a range of laws and legal mechanisms that curtail the
development of CSOs. According to Weiss (2002: 31) there are
“the Societies Act, the Police Act and a range of laws restricting speech, the press
and assembly. Altogether, these laws determine not only which NGOs may exist as
legal entities, what funding they may seek and accept, and what they may do, but
also how NGOs make their case to the public and who may join”.
The negative government sentiment, rhetoric, and periodic crackdown of activists and lack
of information about what these organisations do, have led to general public fear with
associating with, in particular, advocacy CSOs. As a result membership numbers of these
CSOs have been very small (Weiss 2002).
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The state is said to favour more docile organisations that aim to increase public
awareness over those that take on an advocacy role. Though there have been increasing
consultations with ‘professional’ and ‘moderate’ CSOs on policies, for example on the
environment, these interactions have been stated to be meaningless and CSO inputs not
taken into account (Weiss 2002).
B. Weak Malaysian civil society campaigns on the electronics industry
When it comes to the electronics industry in Malaysia, there is “hardly anyone
actually looking into it”, noted a Penang journalist (personal interview, 2008). According to
an officer at a Penang based CSO, which had campaigned on hazardous chemicals in the
electronics industry during the 1980s, there were no organisations trying to look into
harmful activities in factories further emphasising “there’s hardly anything moving here”
(Penang CSO representative, personal interview, 2008). According to the Penang CSO
officer, the organisation does not have the capacity to deal with the enormous industry and
the concerns associated with it in the state.
There is also a general lack of knowledge of the environmental health and safety
concerns with the industry. The industry was perceived to be clean by people noted a labour
activist that has worked with workers in the industry in the past (labour activist, personal
interview, 2008). An occupational health doctor that works with the Penang CSO also felt
Malaysian CSOs were generally ignorant of the hazards and environmental impacts of the
electronics industry. The Penang journalist found, “the main environmental projects which
have captured the public imagination which they're concerned about are things which they
can actually see”, such as the building of incinerators or the cutting down of trees or the
destruction of green spaces (journalist from Penang, personal interview, 2008). The public
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health community and the general public are kept in the dark of environmental impacts and
health risks posed by the electronics industry. The media was also said to be weak and
controlled by political and business interests. What reporting does take place on
environmental issues is on information that does not harm industry and the private sector,
such as articles on how to recycle (Penang journalist, personal interview 2008).
The advocacy work of the Penang CSO was stifled by the lack of information, the
lack of complaints by workers and in particular the lack of information over the long term
health conditions of electronics workers. The Penang CSO officer noted “we don’t know
what goes on and what happens to the workers after twenty to thirty years. There was like
some interest in looking into that but it’s kind of difficult.” (Penang CSO officer, personal
interview 2008). Without knowledge of the links between hazards in the workplace and
illness, workers do not know that falling ill in the workplace might be related to exposures
to chemicals and other harmful substances. Some may not complain because they do not
want to lose their jobs and livelihoods.
Interviews with a labour activist and trade union members that have worked with
workers in the electronics industry in the past noted factory workers rarely take medical
leave for health problems. They avoid doing so in order not to be penalised for it. Foreign
workers were also said to not have health insurance and therefore must pay out of pocket for
their medical bills. In factories of larger companies, there are at times in-house nurses and
doctors. Workers who felt ill and visited the nurse’s office were given time to rest until they
felt better and could return to the production line. It was thought this practice was a way of
preventing workers from taking medical leave and lost work days (Malaysian labour
activist; trade union members, personal interviews, 2008). Further, according to a trade
union representative in Penang, the electronics industry needed a “pliant workforce” and
young, particularly female, workers were lured to factory jobs through features like beauty
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contests and cosmetics promotions, which worked as a ‘diversion’ from the health and
psychological effects of their jobs (Malaysian trade union member, personal interview,
2008).
The labour activist recalled stories of workers that contracted cancers and other
illnesses who would return to their villages to either recover or die. One particular case was
highlighted of a worker who complained of the same symptoms for over ten years to a
factory nurse. The medical records from the complaints were no longer available following
the routine practice by the firm to destroy such records every few years – a practice
conducted by many firms according to the labour activist. A doctor that met the worker felt
that the illness was likely caused by long term exposure to chemicals but said he “would not
repeat this out of the room because he [was working for and] paid by the company”
(Malaysian labour activist, personal interview, 2008). This worker became very ill and
returned home where she eventually died. While the organisation the labour activist
represented wanted to bring a case against the firm, the family of the worker disagreed. The
worker had received payments by the firm for her medical bills towards the end for her life
for which the family was grateful.
C. Trade unions and the electronics industry in Malaysia
Malaysia falls within a group of developing countries that exhibit suppressive and
authoritarian control over labour. According to Kuruvilla (1995), the industrial relations
system and regulations are controlled by the state in favour of the private sector and in
particular foreign investors. The negative sentiment towards trade unions by the Malaysian
government is without question. Abdul Karim, M. R. (1997: 32), writing from the Prime
Minister’s Department, referred to trade unions as having a “traditional stance of making
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unreasonable demands”. Even in recent years, trade union leaders have been threatened by
government to be detained under the Internal Security Act (ISA) for reasons of threatening
national security. The ISA, which was used for Operation Lalang, can detain a person
incommunicado without trial for sixty days, which can be followed by a two year jail
sentence also without trial (Rajeswari 2007).
The favouring of the private sector over the concerns of workers has been a long
standing practice in Malaysia. The first foreign electronic firms that established in Malaysia
from the early 1970s onwards received several generous provisions. Housed in Export
Processing Zones (EPZs), firms received Pioneer Status, which along with tariff and tax
exemptions for five to ten years, also exempted the formation of unions until firms reached a
state of maturity. One trade union member characterised the functioning of EPZs as “areas
declared to be not the host country’s land, it’s a free land...” implying one does not have to
follow laws in these locations (Penang trade union representative, personal interview, 2008).
Since the first electronic factory was built in Penang in 1972, the Malaysian
government has resisted all attempts over a forty year period to create a national union for
the electronics industry.15 Indeed, foreign firms in the electronics industry have had an
influence on labour policies in Malaysia. In 1981, for example, the Malaysian government
granted Intel exemptions from the Employment Act of 1955, which sets the policy for
worker conditions such as pay rates and working hours. The exemptions allowed workers at
Intel to work for sixteen hours continuously. As a result of pressure by foreign firms, the
entire electronics industry was made exempt from the Employment Act of 1955 in 1988.
This allowed for reductions in overtime and holiday pay rates for the entire industry
(Kuruvilla 1995). In 1983, the managing director of the HP factory in Penang was quoted,
15 In 2009, the Malaysian government approved for the first time regional unions for the electronics sector. All other industries have national unions in the country. In 2010, three regional unions were registered, with the Northern region union covering Penang (GoodElectronics 2010).
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“Corporate officials would probably hesitate to invest further in Penang if unionism proves
to be successful in electronics factories” (The Star 5 July 1983 in Jomo and Todd 1994).
While most industries with Pioneer Status slowly formed national industry wide
unions throughout the 1970s, the electronics industry did not. A curious event however took
place in 1988 when the then Minister of Labour declared the electronics industry had
reached a sufficient degree of maturity and therefore allowed for the formation of trade
unions (Rasiah 1995). The declaration by the Minister was the result of pressure from the
ILO, the International Metal Workers’ Federation and the American Federation of Labour
and Congress of Industrial Organisations (which successfully petitioned the United States
Congress to remove Malaysia’s General System of Preferences over labour rights conditions
in the country). In response, foreign electronics firms in the country, according to a Penang
journalist, went “berserk” (Penang journalist, personal interview, 2008). Protests, counter
activities and threats by mostly American firms and the Malaysian American Electronics
Industry trade group and a few Japanese firms to leave the country led the Minister of
Labour to rescind his earlier statements and declare that only in-house unions would be
allowed for the electronics industry (Bhopal and Todd 2000; Kuruvilla 1995; Rasiah 1995;
Turner 2006).
In-house unions were part of the Look East policies set by then Prime Minister
Mahathir. Mahathir found Western style unionism inappropriate for Malaysian workers and
threatening to economic growth in the country (GoodElectronics 2010). However, in-house
unions were not enforced and the policy was intended rather to keep the labour movement
fragmented according to Jomo and Todd (1994). Jomo and Todd (1994) and Bhopal and
Todd (2000) have found that, influenced by their home cultures, the strongest anti-union
sentiment were seen among American managers, even of in-house unions, in comparison to
Japanese, European and Australian firms.
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Electronics firms have employed creative strategies to dissuade workers from
forming in-house unions. For example, a firm brought in a Muslim religious teacher to
inform female workers that joining unions is anti-Islamic. Another firm offered Kentucky
Fried Chicken meals to workers that shared names of persons signing union membership
forms. Firms have also changed their company names while an application for an in-house
union was being validated. The anti-union sentiment by American electronics firms has
been particularly strong and threatening. In 2007, there were around 365 electronics firms in
Malaysia which had in total a workforce of close to 290,000. Out of this vast number, only
twelve in-house unions were registered representing around 12,000 to 15,000 workers
(GoodElectronics 2010).
D. Keeping the trade union movement futile in the electronics industry
Attempts to organise workers in the electronics industry had been repeatedly rejected
by the Registrar of Trade Unions (RTU) for decades. Without a national union for
electronics workers, the Electrical Industry Workers’ Union (EIWU) tried to circumvent the
situation by attempting to register electronics workers within its own union. This was
rejected by the RTU, however, which deemed the electronics industry different from the
electrical industry. After this failed attempt the umbrella national trade union organisation,
the Malaysian Trades Union Congress (MTUC) applied for a National Union of Electronics
Workers in 1978. This application was eventually rejected by the RTU only in 1989 after in-
house unions were made legal in 1988.
As discussed above, there was strong resistance by firms to in-house unions. The
harsh treatment and dismissal of workers involved in creating a successful in-house union at
a RCA plant in 1989 sent a message of futility to labour organisers (Jomo and Todd 1994).
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Further, after the detention and abuse of many trade union activists during Operation Lalang
in 1987, efforts to press for a national electronics industry union by the MTUC became
weaker. As a result of these events, the 1990s and 2000s did not see much activity by trade
unions and there was little progress in getting any closer to a national union for the industry.
As one trade union representative put it, “they’ve [the government] already subdued the
movement” (personal interview, 2008). Without access to workers, labour activists have had
to rely on leafleting, word of mouth, and the bravery of workers to voluntarily attend
‘secret’ meetings outside of work time (labour activist, personal interview, 2008). In 2008,
for example, the EIWU was only able to leaflet and talk to workers outside factory premises
to encourage in-house unions. This was made more difficult by workers being bussed into
factory premises and let out behind closed gates manned by security guards. When leaflets
had been successfully passed to workers before they enter factory premises, they were
normally confiscated by the security guards after entering the factory (trade union member,
personal interview, 2008).
The trade union and labour activist community in Malaysia is dominated by ethnic
Indians despite a significant portion of workers in factories being ethnic Malay. This
difference has also created additional challenges to the trade union movement in Malaysia.
With a greater solidarity and trust in the state to bring prosperity to their lives, Malays have
tended to be sceptical of the other ethnicities present in Malaysia. This ethnic divide is also
due to a favouring of Malays over other ethnicities by government programmes and
subsidies that also characterises the postdevelopmental strategy of the state (Ong 1999b). A
labour activist found it difficult to organise Malay workers who had faith in the government
to improve their conditions. Malay workers did not trust CSOs and branded ethnic Indian
activists as anti-government and anti-Malay – a remnant of Operation Lalang. According to
the labour activist, it had taken many years to effectively reach out to Malay workers
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(personal interview, 2008). It has only been since the mid 2000s, over ten years after
Operation Lalang, that the labour activist had been able to talk to Malay workers again.
4. Conclusion
Together with the previous chapter, this chapter answered research question iii: how
do firm and non-firm actors affect the health and safety governance practices at the supplier
sites in Penang, Malaysia? One of the key features of the GPN framework is its inclusion of
non-firm actors such as CSOs and labour unions as equally important forces as firms in
shaping governance processes and outcomes. This chapter illustrated this feature with
detailed discussions of this group of non-firm actors at the global and local scales. The GPN
framework also considers different forms of power used to shape governance processes and
outcomes. Accordingly, this chapter explored the collective and networked form of power
by these non-firm actors in influencing GPN governance and the factors that created
challenges in exercising this form of power against firms and the state.
The ability of civil society organisations and labour unions to influence and affect
governance of the electronics industry GPN is determined by its ability to exercise its
collective networked form of power to. In this chapter, the discussion was separated by the
global and local scales. At the global level, GEN members exercise a networked form of
power to campaign and pressure the electronics industry collectively to improve its
governance outcomes in the GPN. One of its campaigns is focused on the EICC, whose
development was sparked by a campaign from one of its stronger Western based CSO
members. Indeed, non-firm actors have had an influence in the governance practices of the
electronics industry GPN. However, the collective and networked power of GEN members
has not been able to significantly influence further improvements of the EICC – namely its
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labour standards. There are several factors that have impinged on their networked counter-
power to bring about changes of the labour conditions in the industry.
First, GEN members have not been able to get past the resistance of large EICC
members, which include branded lead firms, to incorporate the ILO Core Conventions on
Freedom of Association and Right to Organise and Collective Bargaining into the industry
wide code. This suggests that EICC members have themselves been able to exercise their
own collective resistance against these demands, which was made clear in the outcomes of a
roundtable meeting held between GEN members and several EICC members in 2010. Part
of this resistance is attributed to the fierce anti-unionism stance held within the industry in
particular by firms from the United States that dominate the industry.
Second, there are varied positions amongst different GEN members on the merits of
a voluntary industry approach to self-governance thereby affecting the networked power of
an organised group of actors. While some organisations, such as trade unions, may prefer
more binding governance mechanisms, other CSOs have welcomed the EICC as a good
start. This schism contributes to the strategy taken by brand firms such as HP to engage in
less collaborative work and dialogue with trade unions in comparison to CSOs (GEN
members, personal interviews 2008; 2010).
Third, various structural features of the electronics industry GPN have also created
challenges and hurdles to organising workers. These include workers being foreign/migrant,
temporary, hired by employment agencies, and female. Within the Malaysian context,
additional factors such as a suppressed trade union movement in the electronics industry and
race/ethnic relations pose additional challenges. Further, the vast amount of subcontracted
parts and components that are used amongst lead brand firms makes it difficult to link the
responsibility over the treatments of workers in lower tier suppliers to a specific lead firm in
the GPN (Holdcroft 2009).
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Fourth, which is one of the key findings in this chapter is the differentiated outcome
of the network based collective power of CSOs and labour unions at the global versus the
local scale of the GPN. At the global scale, campaigns are focused on brand firms that hold
power over their suppliers (though not always exercised) over occupational health and
safety governance performance. However, there can be certain limitations to a campaigning
strategy that is focused solely on brand name firms. First, brand firms are powerful enough
to stand firm on their interests, for example such as opposition to labour unions in the
industry. Moreover, a strong focus at the global scale of the industry may miss specific
situations at the local scales of a GPN. In this case study, one of the key findings showed
that while there was greater activity and engagement by global/Western CSOs with brand
firms at the global level their influence at the local level in Penang was limited. Thus, an
important finding in this chapter is the disconnection between the two scales. At the local
scale, the Malaysian state maintained a weakened civil society and labour union movement
thereby preventing the exercise of collective power against the electronics industry. Thus, a
strong anti-unionism sentiment is also mutually reinforced at the global and local levels by
lead brand firms and the Malaysian state respectively. Weak CSOs and labour unions limit
the ability to monitor, investigate, and advocate for improvements of worker conditions in
the electronics industry. The concerns of workers were not being represented by any
organisation in Penang. As a result, not only did workers not understand their rights and
have full or proper knowledge about the health impacts of their work, they also did not have
an easy channel to provide information about their conditions to the outside world. As a
result, there has been little activity and ability to elevate the specific situation of the
electronics industry in Malaysia and of localised spaces such as Penang to global
campaigns. The findings of this case study showed that the more active global campaigns
were disconnected from Penang.
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Understanding the differences in the global versus the local scales of contestation
has important implications for GPN research and analysis. This case study has shown that
GPN governance at the global scale can be very different from that at the local scale. Thus,
there is a need to ensure GPN analysis is conducted at both scales and the links (or lack of)
between them for influencing governance processes of lower tier suppliers. Only an accurate
understanding of the two scales, its actors and processes, and linkages can bring about a
clear picture of GPN governance. Understanding the local context and structural factors that
create challenges for connecting the local with the global is important in understanding the
role and effectiveness of non-firm actors in influencing the outcomes of occupational health
and safety governance in the electronics industry GPN.
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CHAPTER 10
THE STORY OF HEALTH AND SAFETY GOVERNANCE OF THE PERSONAL
COMPUTER GLOBAL PRODUCTION NETWORK
1. Introduction
This research aimed to understand how environmentally harmful production processes
of PCB manufacturing and assembly within the electronics industry, that has been shifted to
developing country suppliers through outsourcing and subcontracting relationships, are
governed down the HP led GPN. The case study is focused on the governance of health and
safety conditions of first tier suppliers to HP and second tier suppliers that are engaged in
the PCB industry and located in Penang, Malaysia. HP was a good lead firm candidate for
this research because it commanded one of the largest supplier bases in the industry and was
heavily engaged in CSR and supplier governance activities. Penang was chosen as the case
study site because it has a long history of being a key location in the global South for
production offshoring and outsourcing by developed country electronics firms since the
early 1970s. Penang also continues to be an important location for the electronics industry
GPN today. The choice of focusing on the PCB industry was made because PCBs are key
components for computers and its manufacturing and assembly processes involve the use of
hazardous and toxic chemicals that can pose health risks to workers. Therefore, proper
health and safety governance is critical in this industry.
The key research question for the case study is how are production activities that have
been relocated to distant developing country locations and pose environmental health risks
governed in terms of environmental health and safety management within a GPN
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framework. This overarching research question is broken down to the following sub
questions:
i. What private governance mechanisms are used for safeguarding environmental
health and safety worker conditions in the personal computer global production
network?
ii. How are these health and safety governance measures implemented through
inter-firm relations amongst the various tiers of suppliers in Penang, Malaysia?
iii. How do firm and non-firm actors affect the health and safety governance
outcomes at the supplier sites in Penang, Malaysia?
The analytical framework for this research is guided primarily by the GPN framework
and supported by the GVC literature on the electronics industry. The GPN framework is
especially helpful for understanding how the exercise of governance is influenced and
affected by firm and non-firm actors and a complex set of power relations between them at
various scales. The analytical framework also borrows from the GVC literature on inter-firm
governance relationships in the electronics industry, particularly between lead firms and
contract manufacturers. This analytical framework has enabled me to examine my data and
research findings in various ways and develop an in-depth understanding of a complex
picture of governance in the personal computer GPN.
The chapter proceeds in the following manner. In section two, the different pieces to this
complex picture of health and safety governance are presented by reviewing the key
findings from the various empirical chapters in accordance to each sub research question.
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Section three revisits the use of various concepts of power that help illuminate the different
types of actor relations that have shaped the governance outcomes of the GPN. Section four
brings together the various parts of the research findings and analyses into a bigger picture
of how relocated production activities to distant developing country locations that pose
environmental health risks are governed. Section five concludes the chapter by recapping on
the main points of the chapter and highlighting areas for further research.
2. Key research findings
With regards to the first research question: What private governance mechanisms
are used for safeguarding environmental health and safety worker conditions in the
personal computer global production network?, the electronics industry uses a variety of
private self regulatory measures such as standards and codes of conduct and a variety of
implementation mechanisms such as self-monitoring, reporting, benchmarking, scorecards,
and audit. HP required its suppliers to comply with its own Social and Environmental
Responsibility Programme which included the EICC as its main governance tool. Most of
the first tier suppliers in Penang implemented firm specific standards and international
standards that included customer requirements. The EICC however was not featured in the
repertoire of private standards being implemented by the majority of the first tier supplier
manufacturing sites in Penang. Second tier suppliers were clearly left out of much of the
private governance system with the majority of them reporting no customer requirements on
health and safety.
In response to research question two: How are these health and safety governance
measures implemented through inter-firm relations amongst the various tiers of suppliers in
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Penang, Malaysia? both the GVC and GPN frameworks provide insight into the nature of
governance relationships between firms. Indeed the use of codes and standards is a key
feature of the health and safety governance tools, which are critical for governing at a
distance in a GPN. When it comes to the governance relationships between HP and its first
tier suppliers, HP clearly places the responsibility over environmental and social conditions
on component suppliers and contract manufacturers that undertake the actual manufacturing
and are “the ones that have a lot of that machinery and equipment” (HP manager, personal
interview, 2008). It was also clear that HP had engaged in a considerable amount of
monitoring, auditing and capacity building efforts with its suppliers. As has been discussed
in the modular value chain literature on the electronics industry, HP also exhibited a certain
degree of trust over the capabilities of large first tier suppliers in particular contract
manufacturers to undertake governance over second tier suppliers. While the GVC
framework addresses some of the coordinating factors that contribute to the types of
governance relationships, other factors also influence such outcomes.
Chapters 5, 6 and 7 showed that the degree of inter-firm governance relationships
were influenced by the amount of resources made available for governance activities and
size of supplier bases of firms. There were vast differences in the governance capacities of
HP and its first tier suppliers and second tier suppliers. For example, while HP had a
supplier base of only 600 to 700 suppliers and a large amount of resources devoted to
governing its suppliers (as well as being a leader in implementing the EICC), one of its key
first tier suppliers (CSHQ) had a supplier base of 12,000 (in 2008), did not devote sufficient
resources for governance activities and struggled to implement the EICC internally and with
its suppliers. Thus, while HP could proudly share the large percentage of audits it had
conducted on its first tier suppliers, its first tier suppliers managed to reach only very small
percentages of its (second tier) suppliers with the early phases of EICC implementation.
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At the Penang manufacturing sites of first tier suppliers, while EHS managers were
actively engaged in implementing codes and standards set out by headquarters (which
included customer requirements from lead firms), there was minimal direct contact between
them and lead firms or customers such as HP. Most of the first tier manufacturing sites were
not audited by customers on health and safety or environmental conditions, though visits
and audits were made on quality issues. Customer or lead firms were engaged more at the
headquarter level leaving the manufacturing sites isolated to a certain degree from such
inter-firm relations. At the Penang sites governance activities occurred mainly within the
intra-firm level.
The Penang manufacturing sites of first tier suppliers were also weakly engaged in
governing their own (second tier) suppliers. Many of the key second tier suppliers of these
first tier firms were designated by customers and not located in Malaysia. This meant first
tier suppliers could not necessarily decide on their key suppliers based on their
environmental, health and safety performances. It was also not clear whether lead firms
were governing environmental, health and safety conditions of the second tier suppliers they
placed on their approved vendor lists. It would not have been the case for HP which does
not govern its second tier suppliers (HP manager, personal interview, 2008). The lack of
governance engagement by first tier suppliers over second tier suppliers was particularly
clear when it came to the EICC. Implementation of the EICC on second tier suppliers by the
different first tier supplier headquarters’ corporate responsibility departments was weak and
slow. Most of the first tier suppliers at the headquarter level managed to reach only a very
small percentage of its suppliers with the industry code and none had completed all four
implementation phases of the EICC with their (second tier) suppliers.
Finally, in Penang the majority of second tier suppliers interviewed were not
required to meet customer requirements over health and safety. Further, one second tier
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supplier (Supplier 2) did not know any of the customers it supplied to because it shipped
components through a manufacturer representative which kept final customers confidential.
Such arrangements effectively make inter-firm governance relationships between first and
second tier suppliers impossible.
Part of the challenge of driving private governance measures down the GPN is the
structure of the electronics industry which expands the numbers of suppliers while limiting
the resources available for governance as one travels down to lower tier suppliers. The
former is particularly the case for contract manufacturers and large first tier suppliers that
undertake the bulk of manufacturing and hold the largest supplier bases in the industry. The
latter challenge of limited resources is particularly the case for small suppliers in lower tiers
of the GPN. In the electronics industry, such suppliers compete intensely on price and speed
while maintaining quality and meeting customer demands for increasingly cheaper
components and products (second tier supplier interviews, Penang, 2008; GEN member;
Holdcroft 2009). With tighter budgets, smaller suppliers in particular may not have the
resources for the internal changes and reforms private standards and codes require them to
undertake. This illustrates the ‘Catch 22 situation’ smaller suppliers find themselves in
where achieving environmental and social standards moves value up the GPN to brands
while costs and risks over meeting them move down to suppliers (Barrientos 2008;
Ruwanpura and Wrigley 2010).
The establishment of the EICC poses a further resource challenge for these suppliers.
Before the industry code, first tier suppliers were not required to implement standards and
codes on their (second tier) suppliers and as a result did not have to expend much resource
on supplier governance. Second tier suppliers that complied with international standards
bore the implementation costs largely on their own. Today, first tier suppliers who are EICC
members are required to implement the code internally and with their suppliers. Thus, the
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EICC has in effect increased the costs of supplier governance for first tier suppliers. While
suppliers have complained of high implementation costs, an HP director dismissed them and
felt supplier complaints would be overcome once the competitive edge that EICC
compliance provided (like quality management systems) was realised (CSHQ interview
2008; Making Supply Chains Socially Responsible: Environmental Sustainability in
Electronics 2007).
Based on the GPN framework, non-firm actors such as civil society organisations
and trade unions can also play an important role in shaping the governance practices of
firms in an industry. For larger first tier suppliers, the lack of pressure and campaigns by
external non-firm actors and the lack of a brand image to protect results in weak incentives
to allocate adequate resources for environmental, health and safety governance programmes.
The final sub research question is: How do firm and non-firm actors affect the health
and safety governance practices at the supplier sites in Penang, Malaysia? It assumes that
private inter-firm governance does not occur in a vacuum but is rather shaped by different
external actors and processes. Some find that proper governance over risks such as health
and safety or the environment can be better assured with a complementary approach that
includes both private self regulatory measures and government regulation as opposed to a
total privatisation of governance in a GPN (Neilson and Pritchard 2009). Thus, the host
country government has a role to play in ensuring proper governance outcomes of the
electronics industry GPN. This is particularly important when private governance measures
do not reach the bottom or lower tiers of the GPN, such as the case of the second tier
suppliers interviewed in Penang.
Accordingly, chapter 8 examined how health and safety conditions in factories in
Penang were shaped by the Malaysian regulation on occupational safety and health.
Unfortunately, the Malaysian regulation and the regulatory authorities responsible for its
256
implementation did little to bolster the health and safety conditions in the Penang sites and
more importantly failed to fill the governance gap experienced by the second tier suppliers.
This was due to a combination of factors that included the health and safety legislation
being based on the principle of self-regulation, a lack of knowledge of occupational health
issues by the regulatory agency and firms, and a conscious lack of effort in enforcing the
legislation with small suppliers struggling to compete in the world market. Small suppliers
remained stuck in low value added activities, which includes PCB assembly, and have as a
result come under tremendous competitive pressure from neighbouring lower cost countries
(as discussed in Chapter 2). DOSH was seen not enforcing legislation with these struggling
suppliers in order to minimise their cost burdens.
Much of these regulatory dynamics in Malaysia reflects the conflicting priorities and
dilemmas that are the outcome of its postdevelopmental state strategy. Reforms to
modernise and become an industrialised country are faced with compromises in order to
maintain global competitiveness that run counter to proper enforcement of regulation. For
example, while OSHA is a modern self-regulatory style occupational health and safety
legislation, the state does not have the sufficient capacity, resources and knowledge to
implement it effectively, which includes transferring capacity and knowledge to firms that
are necessary for regulatory compliance. Moreover, the state or more precisely its regulatory
agency DOSH must acknowledge the struggles small and medium sized firms face to
maintain competitiveness in the electronics industry in Penang and decide to exempt them
from a significant portion of the legislation or simply not enforce it. The lack of private and
public governance mechanisms down the GPN raises important questions on whether the
safeguarding of health and safety of suppliers down the GPN in Penang, Malaysia can be
assured. Thus, the context of the state and its regulatory conditions is important in the
governance outcomes of certain locations, and in particular lower tiers, of a GPN.
257
Where the state played a positive role in bringing about standards compliance was
the final market of the EU. Suppliers that shipped their parts and components to customers
that supplied the EU had to be in compliance with RoHS (and WEEE). This included second
tier suppliers that have much less resources dedicated to governance requirements but which
nevertheless brought their facilities under compliance in order to maintain their customer
contracts.
Chapter 9 examined how governance practices over worker conditions in the
personal computer GPN were influenced by non-firm actors such as civil society
organisations and trade unions. The electronics industry faces external pressure from these
groups to improve its labour conditions particularly of factories located down the GPN in
developing countries. Indeed campaigns by pressure groups have played a role in shaping
governance activities in the electronics industry GPN. For example a campaign led by
CAFOD resulted in the establishment of the EICC – a code of conduct which has become a
key governance tool for the industry today. Despite this initial achievement, which was
gained mainly through the targeting of lead brand firms at the top of the GPN, the EICC has
not solved the problem of a lack or prevention of trade unions in the industry. More
specifically, civil society organisations and trade unions have not been able to push the
inclusion of the ILO core labour standards into the EICC. Part of this challenge is a
reflection of the limits of campaigns focused only on powerful lead brand firms. Lead firms
in the EICC, particularly American brands, are themselves a strong group with the network
power to withstand pressure on giving into one of their critical bottom lines, which is to
remain free of trade unions.
There is also a higher degree of campaigning activity at the global level, which is
mainly targeted at lead brand firms, than at the local level with lower tier suppliers in
Penang, Malaysia. Part of the challenges at the local level in Malaysia is the Malaysian
258
government which has historically suppressed the activities of civil society and trade union
organisations. A weak civil society movement plays a factor in the ability to understand the
situation of the electronics industry in Penang and to elevate concerns to the more effective
global level of campaigning.
The inability of the global to connect with the local scale is also partially explained
by the focus of global campaigns by mainly Western-based civil society organisations on
brand firms. While the rationale to do so is effective in terms of targeting those firms whose
brand image can be affected enough to spur action, it at the same time misses a key group of
firms that may have the potential to equally bring about key changes in GPN governance.
This group of firms are large first tier suppliers and especially contract manufacturers. As
was discussed earlier, the lack of pressure on first tier suppliers was a factor in their under-
resourced governance activities and weak performance in pushing environmental health and
safety standards and codes down the GPN in areas such as Penang, Malaysia.
3. Revisiting concepts of power
In the discussion of the analytical framework presented in Chapter 3, I raised the need to
analyse GPN governance using three concepts of power: 1) ‘power over’; 2) ‘power to’; and
3) power in the Foucauldian governmentality perspective as ‘technology’. It is argued that
GPN governance can be better understood with a proper understanding of the different
power relationships that are simultaneously at play between different actors and at different
scales. In other words the types of power relationships between firms (power over) are
different from the nature of the power relationships between firms and civil society
organisations or trade unions (power to). Further, the actual exercise of day to day
governance activities are in themselves exercises of power (governmentality). This multiple
259
understanding of how power is exercised helps increase the understanding of how and why
certain dynamics and outcomes of GPN governance are as they are. In this sub-section, I
aim to use these concepts to examine the different types of power relations in the different
nodes and scales of the case study and how they affect the governance practices in the GPN.
A. ‘Power over’: inter-firm relationships
The concept of ‘power over’ helps to describe power relationships and asymmetries at
the inter-firm level in a GPN. A lead or brand firm is said to have significant power or
control over its suppliers based on its contractual relationships and by determining who can
participate in a GPN and under what conditions. In the Gereffi et al. (2005) typology of
GVC governance, lead firms have the greatest power over (or power asymmetry with) first
tier suppliers in captive governance relationships and less so in the modular and relational
governance relationships.
In the electronics industry, the power relationship between lead firms and first tier
suppliers (contract manufacturers in particular) are considered to be modular (Sturgeon
2002). Power asymmetry in a modular governance relationship is low due to various factors
discussed in Chapter 3. Lead firms have to a degree cooperative working relationships with
highly capable contract manufacturers and do not micro-manage or dictate much of their
activities. This cooperative relationship and low power asymmetry between lead firms and
contract manufacturers was illustrated by the two groups of firms coming together to
develop the EICC. Contract manufacturers wanted to have a seat at the negotiating table in
order to have a say in the types of standards and codes they would be expected to comply
with as requirements by their customer lead firms. Further, the research findings showed
there was a greater trust placed on the capability of contract manufacturers to implement
260
standards and codes and govern their suppliers. According to the HP manager the brand firm
had greater confidence in contract manufacturers from developed countries such as
Flextronics over those from developing countries to govern themselves and their (second
tier) suppliers.
Despite the collaborative relationships HP has with its contract manufacturers, the
brand firm does ultimately exercise power over its first tier suppliers. HP has a robust set of
EHS governance requirements with a large amount of resources devoted for enforcing them
via auditing and capacity building efforts. The HP manager spoke of the necessity to visit
and audit its first tier supplier sites and was proud of the firm’s high record of audits. The
governance relationship HP has with its first tier suppliers however does not extend to
second tier suppliers. It was made clear that reaching second tier suppliers was difficult
without contractual relationships. Therefore, HP placed the responsibility of governing
second tier suppliers on first tier suppliers.
The power dynamics between first tier and second tier suppliers however was less
clear when it came to health and safety governance. While in theory first tier suppliers can
hold power over their own (second tier) suppliers by requiring compliance of standards and
codes, they did not always exercise them as most of second tier suppliers in Penang did not
have customer requirements or scrutiny over EHS. This suggests first tier suppliers placing a
lower priority on EHS conditions of its second tier suppliers. Where power over was
exercised by first tier suppliers on the second tier suppliers in Penang was on business
related matters such as product quality. Moreover, those first tier suppliers that utilised parts
and components from second tier suppliers in final products destined for the EU had
required compliance over the EU Directives RoHs (and WEEE). Thus, the lack of legitimate
external pressure on first tier suppliers such as final market legislation over the environment
261
and health impacts of products was a factor in their exercise of power over second tier
suppliers.
B. ‘Power to’
Another form of power exercised within the GPN is the collective and relational
‘power to’ by a networked group of CSOs and trade unions – many of which were members
of the GoodElectronics Network. HP and other member firms of the EICC recognised the
GoodElectronics Network as a powerful group of actors whose campaigns and actions can
lead to tarnishes in brand images. Despite its collective power, the GoodElectronics
Network has been unable to push past the resistance within the electronics industry to
incorporate the ILO core labour conventions into the EICC. However this is not to suggest
that all members of the GoodElectronics Network are weak. Some individual members of
the network have been able to bring about governance changes such as sparking
development of the EICC by the industry and in successfully persuading HP to release the
names of its top 100 suppliers in 2008. It is suggested the weakness of the collective power
amongst civil society organisations and trade unions may lie in their strategy of targeting
mainly brand firms at the top of the GPN. While brand firms such as HP do have the power
and capacity to pull up laggards and suppliers in the industry on EHS, they are themselves
part of a more powerful collective of firms that are members of the EICC. Indeed the wide
resistance by the group of EICC members to the inclusion of the ILO core labour standards
at a meeting with GEN members illustrated the power large firms can still hold over civil
society organisations and trade unions on particular issues.
It is worth noting that a group of key firms in the electronics industry, however,
could be targeted more explicitly to bring about improvements in governance over labour
conditions in the GPN. This group of firms are the contract manufacturers. Since contract
262
manufacturers undertake the majority of manufacturing and hold larger supplier bases in the
industry, they are important actors in crucial nodes of the GPN. Further if the power
dynamics between lead firms and contract manufacturers are changing as limits to
modularity are faced (see discussion in Chapter 3) and the former find themselves
increasing their dependency on the latter, the rising powers of contract manufacturers could
be strategically targeted by campaigns. For example civil society organisations could call on
contract manufacturers to collectively demand for changes to the structure and commercial
logic of the electronics industry GPN. Contract manufacturers could be pressured to demand
transfers of resources by lead firms, for example through higher prices, to govern their
larger supplier bases. By understanding the geographical role of specific nodes in a GPN,
civil society organisations and trade unions can identify weak points for tactical strategic
and effective action (see Rainnie et al. 2011).
While the activities of GEN members have brought about the most changes in
governance practices at the ‘global’ level or top of the GPN through engagements at the
headquarter levels of lead firms such as HP, it has been less active and successful further
down the GPN in local places such as Penang, Malaysia. Local civil society organisations
and trade unions in Malaysia are also unable to elevate the situation in Penang to the global
level of campaign activity as a result of their suppression by the state. Part of the difficulties
of raising the issue of local conditions is due to the suppressive actions against civil society
organisations and trade unions by the Malaysian government. Thus the strength of the GEN
network is strongest at the global level and top of the GEN and becomes weaker at the local
and more disconnected from global level of campaigning activities.
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C. Governmentality/power as ‘technology’
The final concept of power introduced in Chapter 3 was that of governmentality or
the idea of power as a ‘technology’. The perspective of governmentality allows for the
examination of power at the micro level or day to day actions of individuals. Thus, this idea
of power allows one to look at the micro scale of a GPN to understand how governance
actions are undertaken at the intra-firm level. In other words, it can be used to examine
relations within the firm more closely rather than treating it as a black box (Hess 2008). By
examining the day to day intra-firm governance activities, the governmentality perspective
helps bring out the practical dimensions of governing at a distance in a GPN. This is
particularly important from the perspective of the manufacturing sites in Penang, whose
interactions with their customer firms were minimal. Rather manufacturing sites were
engaged in governance relationships mainly with their headquarter officers.
As discussed in Chapter 3, governmentality technologies are used to lead and control
the conduct of individuals indirectly by making subjects responsible for their own
governance through self-regulation (Lemke 2002). Techniques of neoliberalism, in
particular calculative techniques, such as indicators, standards, certifications, performance
measures, benchmarks and audit turn ‘the social’ into something that can be recorded,
calculated and compared and hence governable. Indeed, these techniques feature
prominently in the GPN governance over health and safety risks. HP, for example, relied
heavily on audits and scorecards as mechanisms for measuring and assessing supplier
performance over environmental and social conditions. First tier suppliers were similarly
engaged in implementing a variety of self-regulating techniques as part of their own
governance programmes and customer requirements). The power of these techniques is not
only in their outcome of creating self-governance subjects, but also its taken-for-granted and
common sense nature that allows its proliferation into diverse domains without question.
264
Whether these techniques do indeed achieve goals such as safeguarding the health and
safety of workers is not relevant or questioned rather the implementation of the techniques
or the ‘conduct of conduct’ (Power 1997).
An important part of the governmentality literature is the use of governance
techniques to govern ‘at a distance’ by ‘centres of calculation’ (see Chapter 3). In a GPN,
MNCs function as ‘centres of calculation’ at their headquarter offices as they seek to govern
their manufacturing sites located in other countries using a series of self-governing
calculative techniques such as standards and codes, benchmarking, and audits. An important
group of actors that help facilitate health and safety governance across borders was the EHS
managers at the Penang manufacturing sites that were tasked with doing the governing. EHS
managers played a critical role as relays of information between manufacturing sites and
firm headquarters. Moreover, not only were these managers governors over the health and
safety of workers, they were also themselves governed by headquarter managers that
subjected them to the powers of self governing techniques of regular self-evaluation, self-
monitoring, reporting and benchmarking responsibilities. Through these techniques, EHS
managers were themselves disciplined in becoming experts in the conduct of conduct. They
do not question whether their activities do indeed safeguard the health and safety of
workers. Rather they accept such techniques as the right way to govern and fulfil their duties
and responsibilities as set out by headquarters.
4. Putting it all together: the big picture of governance in the personal computer
industry
265
The first half of this thesis described the functioning of governance activities
between firms within the personal computer GPN. More specifically, it described the
capacity of the lead firm HP to implement a robust supplier governance programme in
which the EICC featured prominently with its first tier suppliers. The findings show
however that first tier suppliers, in stark contrast to HP, struggled to implement standards
and codes throughout their manufacturing sites and faced an even greater challenge
governing their own larger (second tier) supplier bases. The weak implementation of private
governance mechanisms such as international standards and the EICC was more acute at the
level of second tier suppliers in Penang. Not only are resource constraints more severe
amongst this group of suppliers, they are also largely left out of the private governance
framework also from the absence of customer requirements on health and safety results. The
inter-firm governance outcomes in this case study show that while there is greater resources
and capacity at the top of the GPN over supplier governance, it is diminished as one travels
down the GPN to lower tier suppliers.
The weak governance over lower tiers of the GPN is also affected by a wider context
and set of actors. Civil society organisations and trade unions operate at the global and
local/national levels to pressure the electronics industry to improve environmental and
worker conditions. At the top of the GPN at the level of brand names such as HP there is a
considerable amount of engagement by mainly Western/global CSOs and an international
trade union federation to bring about improvements in the industry. There is also a
considerable amount of engagement by HP and other brand firms with CSOs. HP was
considered by some CSOs to be one of the more open brand firms willing to work with them
on supplier governance improvements. While there was a lot of activity taking place on
CSR and by CSO campaigns at the global level and in countries such as the United States
266
and in Western Europe where the majority of brand firms are headquartered, there was a
severe lack of similar activity in Penang, Malaysia.
The local and national context of Penang and Malaysia is one of weak CSOs and
trade unions. While a few Malaysian CSO and trade union representatives were members of
the GEN and have participated in meetings with brand name firms like HP the dialogue and
exchanges remained at the global or Western levels. At the lower tiers of the GPN, civil
society interaction with the electronics industry was largely absent and there was a lack of
connection between the situations of the electronics suppliers at the local scale in Penang to
the global campaigns on the electronics industry and with brand or lead firms such as HP.
There was not a similar degree of awareness raising campaigns and pressure applied to
suppliers located in Penang. Thus, the further down the GPN to the local scale of Penang,
scrutiny and campaigning over health and safety conditions of lower tier suppliers also
becomes weaker.
Regulatory agencies in Malaysia that were tasked with implementing the
Occupational Safety and Health Act faced a dilemma when it came to regulating smaller
lower tier suppliers down the GPN. Given the struggles of SMEs to compete in an industry
that has seen the flight of factories to low cost neighbouring countries such as Cambodia,
Vietnam and China in the past decade, DOSH did not want to burden these already
struggling firms by enforcing costly legislation. Thus the further down the GPN, regulatory
oversight also becomes weaker for lower tier suppliers located in Penang.
There is an important observation to be made from this wider context. The top of the
GPN is characterised by a considerable amount of activity and drivenness by HP and its
exercise of ‘power over’ its first tier suppliers as well as pressure and campaigns by CSOs
and trade unions that reflects the exercise of ‘power to’ by GEN members on lead firms
267
such as HP. In other words, governance activities by firms and engagement by non-firm
actors are strongest at the top of the GPN at the global scale. As one travels down the GPN,
however, the first tier supplier context is characterised by low resource allocation and hence
capacity which is implicated in their unexercised power over second tier suppliers and lack
of interest in enforcing standards and codes on health and safety (see Table 10.1 and Figure
10.1).
The situation of second tier suppliers in Penang can be described as falling into an
overall governance gap. They are not being reached by the private governance measures
originating at the top of the GPN and this private governance gap is not being filled by the
national regulation on occupational safety and health and its proper regulatory oversight by
Malaysian government agencies. It is important, however, for governance measures to reach
lower/second tier suppliers in the electronics industry GPN as they are less likely to have
sophisticated automated processes or machinery and more likely to conduct hazardous
activities such as PCBA by hand. This raises the risk of workers at the lower tiers of the
GPN to more health and safety risks.
The computer industry GPN faces the contradictory logic of pushing more and more
production activities and risks down the global supply chain while limiting the resources
and/or transfer of resources by lead firms (for example by increasing prices) to lower tier
suppliers for governance requirements. This leads to a contradictory outcome whereby
pushing the responsibility, burden and risk of implementing governance measures down the
chain results in weaker governance responses, outcomes and capabilities. Thus, in order for
governance measures such as the EICC to be meaningful and implemented throughout the
electronics industry GPN, there needs to be more engagement with lower tier suppliers by
those firms at the top of the GPN that are allocating more resources for supplier governance
268
and whose reputations and brand images depend on such activities such as brand firms like
HP.
Table 10.1 Changes in the governance needs, performances and outcomes of the different tiers of
the GPN
Supplier base
Governance burden
(internally
and over suppliers)
Resources and
capability
available for
governance
Scrutiny over
labour
conditions
Health and safety
conditions
in PCB industry
Regulatory (Malaysian)
Implement-
ation
Regulatory (Malaysian)
Enforce-
ment
Hewlett Packard
600 – 700
Medium-high
High High (by CSOs and
others)
Outsourced N/A N/A
First tier
suppliers
9,000 –
20,000
High Low Medium-
high (by
customers mainly)
High -PCBM
has heavy
chemical content; high
automation
High Mixed
Second tier
suppliers
N/A Low Lower Low High -PCBA lower
amount but still toxic
chemicals used; low
automation,
work done by hand
Low Low
5. Conclusion
This concluding chapter has recapped the key research findings for each of the
research questions posed in the beginning of my PhD research to understand how
production activities that have relocated to distant developing country locations and pose
environmental health risks are governed in a GPN. The key findings provide a wide picture
of the complexities of GPN governance. In this case study, there is a general weakening of
governance over health and safety in the electronics industry further down the GPN amongst
269
lower tier suppliers in Penang with second tier suppliers falling into an overall private and
public governance gap. The differences in the governance down the different tiers of the
electronics industry GPN are affected by a series of factors. They include resource
availability and capabilities of firms to govern themselves and their suppliers, the absence of
sufficient external pressure on first tier suppliers to improve their governance performance,
the lack of customer firm concern/scrutiny and regulatory oversight of health and safety
conditions of lower second tier suppliers in Penang, and the difficulties faced of civil society
organisations and trade unions at the global level to overcome resistance by lead firms on
trade unions and to connect with the situation at the local scale in Penang. The local context
in Penang with regards to weak regulatory oversight over second tier suppliers and a
weakened civil society and trade union movement are the result of a postdevelopmental
state strategy adopted by Malaysia.
The chapter also delved into analysing the different interactions and processes by the
various actors in the GPN with the use of multiple ideas of power. ‘Power over’, ‘power to’,
and governmentality or power as ‘technology’ were used to discuss the governance
relationships between firms, firms and a network of civil society organisations and trade
unions, and the manifestations of power at the intra-firm or micro level of GPN governance.
The use of multiple concepts of power arose out of my personal frustration over the inability
to utilise one idea of power that could grapple with the different processes and interactions
that were occurring at different nodes and scales in the GPN. The examination and
discussion on power provided in this chapter I would argue should be used in more research
to push the literature on GPN governance further. Incorporating a more complex treatment
of the exercise of power would help build the GPN into an even more robust analytical
framework.
270
By bringing together the different perspectives of power and different actors in the
GPN together, one gets at a more complex understanding of power, contestation and
governance in a GPN. The analysis primarily used the GPN framework with inputs from the
GVC literature on the modular governance framework of the electronics industry. This
research therefore helps advance the literature on GPN governance and how interactions of
various firm and non-firm actors and private standards and public regulation affect it. More
specifically, it has pushed the literature on modular GVCs (Gereffi et al 2005; Sturgeon
2002) by showing there was a wider picture to the dynamics of the governance processes
between a lead firm (Hewlett Packard) and its first tier suppliers than the GVC framework
criteria of knowledge transaction complexity, codifiability and supplier capability. It also
expanded the understanding on complex nature by which non-firm actors, namely civil
society organisations and trade unions, affect governance practices within a GPN and their
limitations (as called for by Coe et al 2008) when the differences between the global and
local scales were examined more closely. Similarly, how the state and its regulatory
capacity can ensure improved governance outcomes was also explored. By utilising
complementary concepts such as the postdevelopmental state strategy (Ong 1999a, 1999b,
2000), that can more accurately depict and differentiate the political economy of a country
like Malaysia this research provided a better understanding of the regulatory dynamics and
constraints in pursuit of hybrid regulatory structures (Mayer and Pickles 2010). The research
also fulfils the call by Hess (2008) for a better understanding of the complexity of power
dynamics of GPN governance with the simultaneous use of multiple concepts of power. In
general, the research has examined how private standards and codes of conduct are pushed
down the very low tiers (second tier suppliers) in the GPN. This helps push the overall GPN
and GVC governance literatures forward with in-depth empirical evidence and a
comprehensive analytical framework that reveals the complexity of GPN governance.
271
With regards to areas for further research, one area of (personal) interest is the
examination of the changing power and governance relationships between lead firms and
contract manufacturers. The question of whether these two groups of firms continue to be in
a modular global value chain as described by Gereffi et al (2005) is raised due to signs of
growing dependence by lead firms over contract manufacturers (Raj-Reichert 2011). An
example is Foxconn which is the only manufacturer of the iPhone and iPad for Apple. Even
a spate of factory suicides in 2010 did not lead Apple to break its contractual relationship
with the contract manufacturer, which had a unique and substantial set of (perhaps
irreplaceable) capabilities as a supplier to the brand frame. What does increasing
dependency by lead firms on contract manufacturers and as the latter gain relatively more
power in the GPN (and a possible change away from a modular governance relationship)
mean for the wider question of environmental and labour governance in GPNs is an
important research project waiting to happen. A second area for future research is the
inclusion of the perspective of workers and their perspectives on environmental health and
safety conditions and governance mechanisms. This would contribute to the growing
literature on how to make ‘decent work’ possible throughout GPNs.
Figure 10.1 Different levels
Second tier suppliers
Firm to firm governance -
- not implementing codes or standards
- not implementing supplier governance
Firm to firm governanceweaker
- weak supplier governance
- manufacturing sites in Penang implement firm specific and
international codes and standards; EICC absent
Firm to firm governance
- leader in implementating the EICC
- high capability of implementing standards and codes on first tier
suppliers
272
Figure 10.1 Different levels of governance in the personal computer GPN
Second tier suppliers
- weakest
not implementing codes or
not implementing supplier
Malaysian health and safety
legislation- weakest
-exempts many small firms
External pressure weakest
First tier suppliers
Firm to firm governance -
weak supplier governance
manufacturing sites in Penang implement firm specific and
international codes and standards; EICC absent
Malaysian health and safety legislation
- no additional burden; easy to implement
External pressure
- not targetted at
manufacturing sites
Hewlett Packard
Firm to firm governance - strong
leader in implementating the EICC
high capability of implementing standards and codes on first tier
External pressure -
- CSOs and trade unions targetted
- HP engages with CSOs
External pressure -weakest
- none
External pressure -weaker
not targetted at Penang
manufacturing sites
- strong
CSOs and trade unions targetted brands
HP engages with CSOs
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APPENDIX 1
A typology of the different codes and standards that are referred to in this case study
Standard, code of
conduct, or
regulation
Coverage of
OHS
directly?
Its function, scope, and
reach
Relationship to actors involved in
GPN governance and the case study
Electronic Industry
Code of Conduct
(EICC)
Yes An electronics industry
wide code of conduct on
labour, health and safety,
the environment, ethics,
and management systems.
It does not require
compliance with the ILO
Core Conventions, rather
firms must comply with
national regulations on
freedom of association in
the countries in which they
operate. Member firms
must enforce the code on
its suppliers
This is a voluntary process
standard for firms.
Developed by a few brands, including
HP, and contract manufacturers in the
electronics industry in 2004.
Compliance of the code is determined
mainly by self-monitoring. Compliance
by high risk suppliers are audited by
EICC auditors. CSOs unofficially and
voluntarily monitor compliance of the
standards.
CSOs and trade unions have
campaigned for its improvements (see
Chapter 9).
In the case study, HP requires its first
tier suppliers to comply with the code
and requires them to enforce it with
second tier suppliers (see Chapter 5).
The code however was not featured
in the list of standards complied with
at the first and second tier supplier
manufacturing sites in Penang (see
Chapters 6 and 7).
International Labour
Organisation (ILO)
Core Conventions on
Freedom of
Association and
Right to Organise
and Collective
Bargaining
No A declaration by ILO
member states, trade
unions, and employer
organisations that
promotes the adoption and
ratification of ILO
Conventions that define
international standards in
the area of freedom of
association and collective
bargaining rights for
workers.
The Conventions are legally
binding for ILO member
states that ratify them.
International labour standards were
developed and adopted by the ILO
member states, trade unions and
employer organsations since1919.
Compliance is ensured through
regular reporting by ratified
governments to the ILO and by the
ILO reviewing government compliance
and the handling of complaints.
Violation of freedom of association
can also be brought against
governments that have not ratified
the convention. Trade unions and
employers organisations participate in
the process and can provide
information. Other CSOs unofficially
and voluntarily monitor compliance of
the standards.
In the case study, civil society
organisations and trade unions have
campaigned for the inclusion of the
Convention 87 on Freedom of
Association and Protection of the
Right to Organise and 98 on the Right
274
to Organise and Collective Bargaining
into the Electronics Industry Code of
Conduct (see Chapter 9).
OHSAS 18001 Yes This international standard
provides guidelines for
developing an occupational
health and safety
management system in
individual firms. It does not
require firms to enforce
the standard on their
suppliers and further down
the supply chain.
This is a voluntary process
standard for firms.
Based on the British Standard 8800 on
occupational health and safety,
OHSAS 18001 was first released in
1999 and has been superseded by
OHSAS 18001: 2007. It was developed
by The OHSAS Project Group
comprising different national
standards, certification bodies,
academics, and OSH organisations.
The business group British Standards
Institution was the Secretariat for The
OHSAS Project Group. OHSAS 18001
was developed to replace the large
variety of national standards and
certifications that were in place
before.
Compliance is determined by self-
monitoring, and third party audits and
certification. CSOs are not involved in
the monitoring of compliance.
In the case study, several first and
second tier suppliers complied with
the standard because it was either
required by a customer firm or it was
a voluntary decision by the supplier
(see Chapters 6 and 7).
ISO 9001 No This international standard
provides guidelines for
developing quality
management system
procedures in a firm and its
dealings with suppliers. It
assures quality control in
the GVC, supplier
traceability, and reduces
transaction costs with
quality management.
This is a voluntary process
standard for firms. Many
firms require their
suppliers to be ISO 9001
certified as a minimum
requirement to assess
competency.
This standard was developed by the
International Organisation of
Standardisation in 1987, which is an
international non-profit, non-
governmental body represented by
national standardisation
organisations. Business plays an
important role in these national
standardisation organisations. The
standard which is based on the British
Standards Institute’s quality
management standard, BS5750, was
driven by the private sector.
Compliance is determined by self-
monitoring, and third party audits and
certification. CSOs are not involved in
the monitoring of compliance.
In the case study, several first and
second tier suppliers complied with
the standard because it was either
required by a customer firm or it was
a voluntary decision by the supplier
(see Chapters 6 and 7).
275
ISO 14001 No This international standard
provides guidelines for
developing environmental
management system
procedures in an individual
firm. It does not apply to
the supply chain like the
ISO 9001. It does not
certify that a product is
environmentally friendly,
rather that the firm has
procedures in place to
reduce environmental risks
and increase resource
efficiency.
This is a voluntary process
standard for firms.
This standard was developed by the
International Organisation of
Standardisation (see above) in 1996
as a response by industry to
increasing environmental demands by
CSOs and multilateral organisations. It
is based on the British standard
BS7750.
Compliance is determined by self-
monitoring, and third party audits and
certification. CSOs are not involved in
the monitoring of compliance.
In the case study, several first and
second tier suppliers complied with
the standard because it was either
required by a customer firm or it was
a voluntary decision by the supplier
(see Chapters 6 and 7).
OECD Guidelines for
Multinational
Enterprises
No This is a set of
recommendations on
business ethics by
governments for
multinational firms. It
includes the ILO
fundamental principles and
rights.
This is a voluntary non-
binding standard.
The guidelines were developed in
1976 by the OECD, which is an
intergovernmental organisation.
The OECD has a Committee in its
Secretariat and national contact
points in member governments that
assist with implementation and
address perceived violations.
CSOs, governments, trade unions, and
individuals can issue complaints over
violations. Thus, these actors are also
a part of the compliance monitoring
process.
The guidelines were consulted when
developing the EICC.
Universal
Declaration of
Human Rights
No The Declaration sets out a
series of rights and
freedoms afforded to all
people.
This is an
intergovernmental
agreement that is non-
binding on all member
governments. Certain
provisions of the
Declaration are binding to
member governments that
have ratified specific
conventions derived from
them.
The Declaration was adopted by
governments at the United Nations in
1948 as a result of the Second World
War and the desire to never have
such atrocities happen again.
Various bodies of the UN implement
the Declaration, through reviews,
recommendations, investigations, and
decisions to take action against
human rights violations.
CSOs unofficially and voluntarily
monitor compliance of the standards.
The Declaration was consulted with
when developing the EICC.
European Union Eco No This regional standard is a The standard was developed by the
276
Management and
Audit System (EMAS)
III
management tool that can
be used by any type of
organisation, including
firms, to evaluate, report,
and improve on their
environmental
performance. The standard
includes the ISO 14001
requirements and goes
beyond it with additional
elements.
This is a voluntary process
standard for organisations.
Council of the European Union and
the European Parliament. It was
driven by the European Commission’s
goal to reduce environmental impacts
of economic activities in the European
Union.
Compliance is determined by third
party independent auditors and
certification. CSOs are not involved in
monitoring compliance.
A standard complied by a large first
tier supplier to HP, CSHQ (see Chapter
6). It was consulted with when
developing the EICC.
Occupational Safety
and Health Act of
1994 (OSHA)
Yes This is the national
Malaysian regulation on
occupational safety and
health.
This is a legally mandatory
process standard for firms
operating in Malaysia.
This regulation, based on self-
regulation, came about at a time
when there was a proliferation of new
factories and industries in Malaysia
and the existing Malaysian legislation
on occupational health and safety and
regulatory agencies could not
accommodate the changes.
The Department of Occupational
Safety and Health in Malaysia is
responsible for enforcing the
regulation on firms. The National
Institute of Occupational Safety and
Health is responsible for assisting
firms comply with the regulation (see
Chapter 8).
Health and Safety at
Work Act of 1974
(HASAWA)
Yes This is the national United
Kingdom regulation on
occupational safety and
health.
This is a legally mandatory
process standard for firms
operating in the United
Kingdom.
The legislation based on self-
regulation came about when it was
thought that the earlier statutory law
was not adequately preventing
industrial accidents and deaths.
The Malaysian Occupational Safety
and Health Act of 1994 is based on
this British regulation (see Chapter 8).
European Union
Directive on
Restriction of
Hazardous
Substance (RoHS)
No This is a regional European
Union legislation which
prohibits use of certain
hazardous chemicals in
electrical and electronic
products sold in the
European Union.
This is a legally mandatory
product standard for
products sold in the
European Union. This
affects suppliers down the
supply chain that have to
This legislation was adopted in 2003
by the European Union and took
effect in 2006. The legislation came
about to address the mounting
electronic waste that is often shipped
to developing countries by reducing
its hazardous contents. It works in
conjunction with the European Union
Directive on Waste Electrical and
Electronic Equipment (WEEE) (see
below). CSOs were involved in
pushing for the legislation.
Compliance is the responsibility of the
277
ensure its inputs to the
final product adheres to
the restrictions. A material
declaration data exchange
is used between firms in
the supply chain.
firm. CSOs unofficially and voluntarily
monitor compliance of the Directive.
In the case study, the legislation is
complied with by some first and
second tier suppliers as customer
requirements (see Chapter 6 and 7).
European Union
Directive on Waste
Electrical and
Electronic
Equipment (WEEE)
No This is a regional European
Union legislation which
restricts the use of certain
substances in electronic
goods and promotes
recycling of electronics
good waste. It is to address
different stages in the
product cycle from product
design to recycling and
reuse.
This is a legally mandatory
product standard for
products sold in the
European Union.
This legislation was adopted in 2003
by the European Union and took
effect in 2006. It came about to
address the mounting electronic
waste from reaching landfills. CSOs
were involved in pushing for the
legislation.
Producers must implement (or pay
for) the collection of the waste.
Producers also join a Producer
Compliance Scheme which is engaged
with environmental agencies and
other organisations to ensure
effective recycling and reuse.
CSOs unofficially and voluntarily
monitor compliance of the standards.
In the case study, it is complied with
by some first and second tier
suppliers as customer requirements
(see Chapters 6 and 7).
EU Directive
Registration,
Evaluation,
Authorisation, and
Restriction on
Chemicals (REACH)
No This is a regional European
Union legislation which
requires firms that
manufacture and import
chemicals to assess and
manage risks and provide
safety information to users.
This is a legally mandatory
product standard for firms
operating the European
Union.
The legislation aims to protect human
health and the environment.
Environmental CSOs were a key driver
for this legislation.
The burden of proving the safety of
chemicals is placed on industry. The
European Chemicals Agency assists
with the management of REACH
requirements and assisting firms with
compliance.
CSOs unofficially and voluntarily
monitor compliance of the standards.
In the case study, no supplier
interviewed was in compliance with
the legislation.
278
APPENDIX 2
Diagram 1 shows the supply chain linkages of the firms interviewed based on information obtained
from interviews, company websites and reports, and the press.
Hewlett Packard
CS2 CS3
CS1
CM
CS4 CSHQ
Supplier 2
Supplier 4 Supplier 1
Supplier 3 Supplier 5 Supplier 6
Supplier 7
279
APPENDIX 3
List of interviews conducted
Firm Respondent Location Dates
Hewlett Packard
Global Program Manager on
Supply Chain Social and
Environmental Responsibility
Lausanne, Switzerland
(off-site, in-person interview)
18 May 2008
Contract manufacturer
(CM)
Occupational Health and
Safety Officer
Penang, Malaysia
(off-site, in-person interview)
23 August 2008
First tier supplier
manufacturing site (CS1)
Senior Environmental, Health,
and Safety engineer
Penang, Malaysia
(off-site, in-person interview)
28 August 2008
First tier supplier
manufacturing site (CS2)
Director and Senior Manager
for Quality, EHS, Human
Resources and Security
Penang, Malaysia
(on-site, in-person interview)
25 August 2008
First tier supplier
manufacturing site (CS3)
Safety and Health Officer Penang, Malaysia
(on-site, in-person interview)
8 September
2008
First tier supplier
manufacturing site (CS4)
EHS Consultant Penang, Malaysia
(on-site, in-person interview)
2 September
2008
First tier supplier
headquarter to HP
(CSHQ)
Corporate Responsibility
Director and Board Member
of the Electronic Industry
Citizenship Coalition
Switzerland
(on-site, in-person interview)
1 July 2008
Second tier supplier
(Supplier 1)
Safety and Health Officer
Penang, Malaysia
(on-site, in-person interview)
17 April 2008
Second tier supplier
(Supplier 2)
Founder and managing
director
Penang, Malaysia
(on-site, in-person interview)
12 August 2008
280
Second tier supplier
(Supplier 3)
Manager Penang, Malaysia
(on-site, in-person interview)
25 August 2008
Second tier supplier
(Supplier 4)
Strategic Development
Director
Penang, Malaysia
(on-site, in-person interview)
28 August 2008
Second tier supplier
(Supplier 5)
Environmental, health, and
safety officer
Penang, Malaysia
(telephone interview)
29 August 2008
Second tier supplier
(Supplier 6)
Employee Malaysia
(telephone interview)
3 September
2008
Second tier supplier
(Supplier 7)
Environmental, health, and
safety officer
Malaysia
(telephone interview)
29 August 2008
Non-governmental
organisation/non-profit
Respondent Location Dates
University of California
Irvine, The Center for
Research on
Information Technology
and Organisations
Dr. Jason Dedrick United States
(telephone interview)
17 December
2007
International Metal
Workers Federation
Jenny Holdcroft,
Director of Electrical and
Electronics sector
Geneva, Switzerland
(on-site, in-person interview)
19 May 2008
International Metal
Workers Federation –
Malaysian office
Mr. Arunasalam P.
Regional Representative
Penang, Malaysia
(off-site, in-person interview)
6 August 2008
International CSO Toxics campaigner
Amsterdam, Netherlands
(telephone interview)
22 January 2008
United Kingdom CSO Lead Analyst, Private Sector
London, United Kingdom
(telephone interview)
29 June 2010
281
American CSO
Senior programme director
New York, United States
(telephone interview)
3 June 2010
Malaysian CSO
Mageswari Sangaralingam
Research Officer
Klang, Malaysia
(off-site, in-person interview)
4 April 2008
Malaysian political
magazine
Journalist
Penang, Malaysia
(on-site, in-person interview)
26 March 2008
International Campaign
for Responsible
Technology
Mr. Ted Smith Respondent located in
United States
(telephone interview)
5 September
2008
Electrical Industry Union
Workers
Industrial relations officer
Penang, Malaysia
(off-site and on-site, 3 in-
person interviews)
10 April 2008,
11 April 2008,
14 April 2008,
Malaysian labour CSO
Ms. Irene Xavier Kajang, Malaysia
(off-site, in-person interview)
19 August 2008
Universiti Sains
Malaysia and Mt.
Miriam Cancer Hospital
Dr. Jayabalan Thambyappa
Occupational health doctor
Penang, Malaysia
(off-site and on-site, 3 in-
person interviews)
10 April 2008,
11 April 2008,
18 April 2008,
Intergovernmental
organisation
Consultant Geneva, Switzerland
(on-site, in-person interview)
28 July 2008
Social, Economic and
Environmental Research
Institute
Officer on Environment Penang, Malaysia
(telephone interview)
3 April 2008
282
European Metalworkers
Federation
Ms. Caroline Jacobsson,
Brussels
Brussels, Belgium
(telephone interview)
19 February
2010
Governmental agencies Respondent Location Dates
Khazanah; (formerly at
Penang Development
Corporation)
Mr. K. Gopalan
Vice President
Penang,
Malaysia
(off-site, in-person interview)
11 April 2008
Penang Development
Corporation
2 Managers
Penang, Malaysia
(on-site, in-person interview)
7 August 2008
Department of
Standards Malaysia
Principal Assistant Director
Putrajaya, Malaysia
(on-site, in-person interview)
20 August 2008
Department of Health –
Penang
Doctor specialised in
occupational and
environmental health
Penang, Malaysia
(on-site, in-person interview)
9 September
2008
Deputy Chief Minister of
Penang
Professor Ramasamy Penang, Malaysia
(on-site, 2 in-person
interviews)
2 September
2008, 5
September
2008
National Institute of
Occupational Safety and
Health
Manager Penang, Malaysia
(on-site, in-person interview)
10 September
2008
Department of
Occupational Safety and
Health
Senior official Penang, Malaysia
(on-site, in-person interview)
13 August 2008
283
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