labour_report2004_en

1

Oxfam Hong Kong Briefing PaperApril 2004

Turning the GarmentIndustry Inside Out

Purchasing Practices and Workers’ Lives

TURNING THE GARMENT INDUSTRY INSIDE OUTP U R C H A S I N G P R A C T I C E S A N D W O R K E R S ’ L I V E S

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INTRODUCTION

The Make Trade Fair Campaign

Oxfam International (OI) launched its MakeTrade Fair Campaign in 2002 to raise publicconcern on how unfair global trade is increasingpoverty and hindering development. Thecampaign has aroused significant attentionaround the world by presenting many cases ofunfair trade practices. In the course of thecampaign, we have highlighted Trade RelatedIntellectual Property Rights (TRIPS) and publichealth in developing countries, the collapse of thecoffee market and the deteriorating livelihoods ofmillions of farmers, the ineffectiveness andunfairness of World Trade Organizationnegotiations, and the unfair agricultural tradepolicies of developed countries.

Oxfam now wants to draw attention to how unfairglobal trade practices impact the livelihoods andrights of workers. OI research across 12 countrieshas found that business practices of a relativelysmall number of dominant global corporationsare causing sweeping inequalities and abuses indifferent countries and within different sectors,such as the US$1 trillion-a-year clothing industry.Changing these practices is essential toimproving working conditions and livelihoods,reducing poverty, and realizing the positivepotential of global trade.

This report explores in more depth thepurchasing practices in garment production andtrade. Hong Kong’s garment companies areimportant regional players, either as agents in theglobal supply chain, as upstream suppliers, or asretailers and brand name owners. We want todemonstrate how these companies’ purchasingpractices are impacting workers’ lives. We will

show how these practices generate hidden coststo workers, costs for which governments andcompanies should be responsible. We alsopropose ways that private companies,organizations and government departments canmake changes in Hong Kong.

This report is based on research conducted byOxfam Hong Kong since 2000 in Hong Kong,Guangdong (China) and Phnom Penh(Cambodia) on workers’ conditions in garmentfactories, the hidden costs for women workers,and the purchasing practices in the industry. Weinterviewed workers, merchandisers, factories,companies, academics and government sources.Although all the research involves Hong Kongcompanies in Hong Kong, Guangdong and PhnomPenh, the conclusions are relevant far beyondthese geographical boundaries: Hong Konggarment companies have a strong presence inAsia and the world.

We also draw our analysis and recommendationsfrom the experiences of workers, theirorganizations, and non-government organizationswho have been actively responding to andcontesting these unfair practices for many years.We call on private companies, governments, aswell as the general public to, act – we each haveour role to play.

Oxfam sees that changes in purchasing practices,stronger government policy, better practice of‘corporate social responsibility’, and a widerpublic recognition of the value of workers, willbenefit us all.

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3

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Garments – a Classic Case of the Global Supply Chain

According to traditional Chinese wisdom, clothesare one of the four basic daily necessities: “clothes,food, a home, transportation” .

Just like many basic commodities, clothes areproduced in a globalized production chaininvolving a wide variety of companies.

Tracing a T-shirt on sale in a shop, it is likely tohave passed through a retailer, a brand namecompany that worked out its design, import andmarketing strategies, and sometimes through awholesale importer. Trading companies, sourcingor buying agents may also play a middle rolebetween markets and production sites tocoordinate the design and ordering, sample-making, materials purchasing, productionscheduling and arranging other logistics invarious countries. Finally, upstream, there aresupplier factories in which workers do the actualcutting, trimming and sewing.

Some companies perform several functionswithin the chain – for instance, the popular brandThe Gap has its regional office in Hong Kongwhich directly places orders to supplier factoriesin the region, while others may have very specificfunctions such as Li & Fung which is mainly asourcing company. In addition, some garmentproduction chains extend further to draw in

production capacity from other factories througha subcontracting network among supplierfactories. Further still, an increasing number ofhome-based garment workers are in manycountries that rely on garment production forexport growth.

The garment industry is one of the earliest toglobalize its supply chain. Factories once locatednear designers and retailers in the USA andEurope, began relocating to Asia in the 1960s andhave since been established on every continent,now providing valuable exports to a wide range ofcountries. As sewing machines are relativelyinexpensive and mobile compared to othermanufacturing items, buyers and suppliers readilyshifted their orders and factories in search of themost competitive locations. The fluidity of theglobalized production structure is also explainedby its labour intensiveness: companies alwaysseek the cheapest labour, wherever it is, butprimarily in developing countries.

All these factors present a classic case of a globalsupply chain in this era of globalization. Whilebusinesses and economists may be mostlyinterested in its management and efficiency,workers’ organizations and NGOs such as Oxfamare concerned with how workers’ rights andlivelihoods are affected.

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4

THE GARMENT INDUSTRY

In 2000, the world’s consumers spent aroundHK$8 trillion buying clothes, with about one thirdof sales in Western Europe, one third in NorthAmerica and one quarter in Asia.1

According to the United Nations, “Clothingremains an important component of world trade,

Being labour-intensive and low-tech, garmentproduction is a major entry industry fordeveloping countries: at least 50 countries exportgarments and rely on it for a substantial portion

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rising from 2.4 to 3.1 per cent of world imports(from US$41 to US$174 billion) during the period1985-2000. It accounted for 20 per cent of low-technology non-resource-based manufactures in2000 (up from 17 per cent).”2

of their foreign exchange. The textile and garmentsector is the single largest source ofmanufactured exports from developing countriesby value.3

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It is a big industry

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It is important to developing countries○

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Country % of National Merchandise Export ● 1995 ● 2002Export Value in 2002 (HK$ million)

Source: http://www.wto.org/english/res_e/statis_e/its2003_e/section4_e/iv70.xls, 17 December 2003.

TABLE 1: Exports of Clothing 1995-2002

China

Hong Kong

Macau

Taipei, Chinese

Indonesia

Thailand

Philippines

Cambodia

India

Bangladesh

Sri Lanka

South Africa

Mexico

Dominican Rep

Honduras

Morocco

Romania

322,156

64,787

12,854

17,137

30,771

26,278

20,366

8,775

42,767

32,222

18,143

1,997

60,458

21,154

3,705

18,821

25,358

(2001)

(2001)

(2001)

16.2%

31.9%

69.0%

2.9%

7.4%

8.9%

13.8%

0%

13.0%

52.7%

46.3%

0.6%

3.4%

45.5%

24.5%

16.9%

17.2%

12.7%

45.5%

70.0%

1.6%

6.9%

4.9%

7.2%

81.7%

12.4%

67.8%

49.5%

0.9%

4.8%

50.9%

37.4%

30.4%

23.4%


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Not only is the garment industry relatively easy tostart up, it is also easy to fold. This fluidity of theindustry creates a lot of instability for both acountry’s economy as well as for workers’livelihoods, especially of women who make upmost of the workers. Taiwan and Korea benefitedfrom garment production and trade in the 1960s,but then suffered significant restructuring andunemployment in the 1980s for its predominantlymiddle-aged women workers. The Philippines,one of the earliest Asian countries to housegarment production, recorded a 13.8 per centexport value in 1995, which fell to 7.2 per cent in2002, forcing many of its women workers intounemployment, unpaid work in the home, or low-paid and unstable jobs in the informal sector.Thailand has also recently experienced this.Countries such as Cambodia, Bangladesh and

Mexico quickly established themselves as the newproduction sites; but without proper support tothe sector or backward linkages to the othersectors of the local economy, it is hard to envisionthat the industry will contribute to positive long-term development in these countries.

Hong Kong is not exempt from this phenomenon.In fact, this has been a major issue for workers formore than 20 years now. Since the relocation offactories to China in the 1980s, many womenworkers have become unemployed, or beenpushed into unstable jobs in the service sector(Box 1). In Cambodia and Bangladesh, workersare now well aware of this problem and havestarted voicing out their concerns andrecommendations to the government and theprivate sector.

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It is easy to start up, and easy to fold

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It is a trade that is easily manipulated

Even if the garment industry may have thepotential as a base for developing countries tobuild a strong manufacturing sector, the industryis highly manipulated by trade agreements inwhich developed countries almost always have theupper hand.

The garment trade has been strictly regulatedsince the 1950s, with quota restrictions imposedby developed countries to protect their ownmarkets. For instance, Japan was pressed by theUS in the 1950s to impose “voluntary exportrestraints” on cotton textiles; the UK thenimposed similar measures on Hong Kong, Indiaand Pakistan. In the 1960s and early 1970s, asnumerous Asian countries began to develop theirgarment industry, industrialized countries sawthe need for more encompassing restraints; andin January 1974, the Multi-Fibre Agreement(MFA) allowed industrial countries to placebilateral quotas on the imports of various textilesand garments.

While the MFA was originally applied to putquantitative restrictions on products that caused,or threatened to cause, serious damage to theindustries of importing countries, it also seriouslylimited the opportunities for developing countriesto expand their garment manufacturing sector.Like many other bilateral agreements, theimbalance in power among countries renderedsuch agreements tools of manipulation andprotectionism. As in the case of Cambodia, whileits garment sector did boom under an importagreement with the US, the dependence of itsnational economy on garments put it in avulnerable position in further negotiations withthe US.

Supposedly a short-term arrangement to giveproducers in the North time to restructure andadapt to competition from cheap imports fromthe South, the MFA was, in fact, renewed a total offive times. During the negotiations for theestablishment of the World Trade Organization

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Due to restructuring and a concentration ofcorporate interests, the garment industry and itsglobalized supply chain, like many other sectorsof the global economy, are dominated by brandnames and retail companies. The biggest retailershave become even bigger: from 1977 to 1992, thetop five US garment retailers doubled theirmarket share to18 per cent.4 And by the late

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It is dominated by brand names and retail companies

(WTO), the Agreement on Textiles and Clothing(ATC) was established to provide a transitionaltimeframe for phasing out the MFA and thequotas in the industry by 2005. However, progresshas remained slow; and governments have not

done much to prepare for the phase-out. Eventhough quotas are seen as unfair trade practices,Bangladesh has been calling for their extension,warning people of an unemployment crisis if thephase-out pushes through.

1990s, multiple-store retailers captured 70 percent of the market in Western Europe, and 85 percent in the US.5

There is also a restructuring and concentrationhappening in the middle links of the supplychains. In Hong Kong, trading companies aregrowing bigger and smaller ones are being

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Mei-chun and her husband, Ah Leung, aged 43 and 45respectively, are from the post-war generation of Hong Kong,who started their work life in factories at a very young age. Tomeet her family’s needs, Mei-chun started working in agarment factory after finishing primary school. She worked ashard as she could at the sewing machine to earn enough forher family, even skipping trips to the toilet. Due to her heavyworkload, Mei-chun developed chronic ailments in her legsand cannot stand on her feet very long these days. Managingto continue her studies at an evening school, Mei-chun saidshe could hardly concentrate on her classes because offrequent overtime at the factory and her fatigue. It was at theschool that she met Ah Leung, and they were married in 1983.

With her mother taking care of her first son who was born in1987, Mei-chun continued to work for an income of HK$3,000to $4,000 a month (approx. US$385 - 515 a month), thoughoccasionally she had to take time off to take care of her son.When her second son was born in 1989, and more and moregarment factories were being relocated to Shenzhen, China,Mei-chun’s income became very unstable and she decided tostay home to take care of her children, especially her secondboy, who was sickly. In 1991, the year their daughter was born,the jewelry factory where Ah Leung was working also startedinvesting in China and began laying off workers - only thehigh-end processing parts of the factory work remained inHong Kong. Luckily, he was able to keep his job, along with tenother workers, but with smaller pay. To take care of thegrowing needs of his family, Ah Leung got a night-time job ina restaurant in 1994.

Seeing the burden and decreasing income of her husband,Mei-chun got two part-time jobs, a cleaner in a supermarketduring the day, when her children were at school, and agarbage collector for a housing estate at night. Mei-chun’slegs gave her considerable pain because of all this work, aswell as higher blood pressure and overall poor health.However, what worried Mei-chun the most was not herhealth, but her husband’s relationship with the children –they had very little time together.

Even with their four jobs, they fell below the poverty line for afamily of five and were thus eligible to receive an incomesupplement from the government’s Comprehensive SocialSecurity Assistance Scheme (CSSA). Mei-chun was afraid ofthe social stigma of receiving the support, especially on theself-image of her children, but said, “It’s not a problem of justone family. The government has the responsibility to helpworkers. I can’t see any social policies to help families like us.”

Mei-chun’s younger sister, who sees herself as havingbenefited from Mei-chun’s hard work when they were bothchildren, is now an organizer of an NGO focused on womenworkers. She said she wanted to look for a collective solutionwith all her ‘sister’ workers.

Source: Translated and rewritten from, Wong, H. (ed.) Oral HistOral HistOral HistOral HistOral Histororororory ofy ofy ofy ofy ofHong KHong KHong KHong KHong Kong Marong Marong Marong Marong Marginal ginal ginal ginal ginal WWWWWorkorkorkorkorkersersersersers, Hong Kong: Oxfam Hong Kong, 2002.(Published in Chinese.)

Box 1: Story of Mei-chun, a Garment Worker in Hong Kong


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“Li & Fung Limited is an example of a worldwide tradingcompany that manages a global logistics chain for its retailerclients and partners. It is a full-package provider that brokershigh-volume garments and fashion accessories. The firm isheadquartered in Hong Kong, China, and is listed on its stockmarket. It has an annual turnover of about US$4.2 billion,employing about 5,000 people worldwide. In 2001, 72% of theturnover was in the garments segment; regionally, orders camemainly from North America (75%) and Europe (21 %).

The firm’s specialty is supply-chain management within itsglobal supply network. It does not own any production facilities,but manages the “full package”: product development, productsourcing and product delivery, including quality control and on-time delivery.”

Li & Fung presides over a large network of contract suppliers inChina and other Asian developing countries, notablyBangladesh, India, Pakistan and Sri Lanka, as well as in Egypt,Madagascar, Morocco and South Africa. The firm generally takesbetween 30 to 70 % of a factory’s output – less would not giveit the clout to secure orders or reserve production capacity forincoming orders, and more would make it over-dependent onthe supplier. In sum, the company’s transnationalization processis based not on the possession of domestic assets that can beexploited abroad (as was the case for many conventional TNCs),but on linkages, tapping into the resources of partners andsharing the risk with them.”

Source: UNCTAD (2002), p.131.

Box 2: Retailers’ Dominance and Full Package Providers

“Barriers to entry are low on the production side ofgarments, in comparison to complex technology-and-scale-intensive industries like electronics and automobiles.However, there are high entry barriers in marketing in thegarment industry. Buyers therefore occupy an important placein global value chains and dominate the industry. There is anample supply of capable garment makers, and it is relativelyeasy to create new ones by providing design inputs and sometechnical assistance. Thus, the fragmentation of theproduction process is very advanced.”

Source: UNCTAD (2002), p.129.

General retailers like Wal-Mart, Sears Roebuck and J.C.Penney, as well as garment specialty retailers like LizClaiborne, The Gap and Limited Brands, both design andmarket clothing but do not make the products they sell. Thesecompanies are controlling a growing share of the UnitedStates market: in 1977, the top 50 apparel and accessoryretailers held 28 per cent of the market and the top 5 held 9per cent. By 1992, the share of the top 50 had risen to 53 percent and that of the top 5 to 18 per cent. Continued successfor buyers in the garments industry depends, to a significantdegree, on identifying and contracting the best suppliernetworks.”Source: UNCTAD (2002), p.130.

squeezed out of the markets. At the same time,some retailers or brands have been absorbing theroles of agents by setting up their own regionaloffices and sourcing directly from factories,thereby becoming ‘full package’ suppliersthemselves.

Today, with more countries involved in producinggarments, and with many suppliers and a limitednumber of big buyers, there is fierce competition

for factory orders within a country and amongcountries. There is also a huge imbalance in thenegotiating power between buyers and suppliers,and this forms an important basis for our analysisof purchasing practices and their impacts onworkers.

Before we move forward, let us take a closer lookat the picture in Hong Kong.


8

The garment industry in Hong Kong started inthe 1950s with the influx of garment familybusinesses from Shanghai. The political turmoilin China and the embargo imposed during theKorean War in the 1950s, coupled with thetransfer of manufacturing from the West to Asia,kicked off Hong Kong’s industrialization process.The transfer of technology and production fromJapan to places like Hong Kong, Taiwan and laterSouth Korea, matured in the 1960s and 1970s,with Hong Kong becoming one of the mostimportant production bases for a number oflabor-intensive industries, including the garmentindustry. The industry was, from the beginning,export-oriented, starting from manufacturing lowquality garments to contracting OEM (originalequipment manufacturing) production fromwestern companies, and then moving on to ODM(original design manufacturing) production as asurvival strategy and to utilize the existing quotafor Hong Kong exports. The economic reforms inChina in the 1980s also triggered the re-positioning of Hong Kong in the supply chain.

THE HONG KONG GARMENT INDUSTRY AND TRADE

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Historical Background

Before British colonization, Hong Kong was animport-export centre, trading products betweenChina and the West. Trading firms such as Li &Fung started business as early as 1906 inGuangzhou, with the garment trade being one ofits core businesses. In the past, trading firmsmade use of Hong Kong as the meeting point totrade raw materials and indigenous products inChina for western manufactured products. Today,the firms help western companies source cheapproduction bases and manufactured products, asthe global production cycle has shiftedmanufacturing to developing countries such asChina and retained only non-productionactivities. Li & Fung, and other similar firms, actas “virtual factories”: they do not necessarily ownany production facilities but assist theircustomers, through global sub-contracting, tomanage the global supply chain, and source andassemble products.

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9

1985 1990 1995 1997 1998 1999 2000 2001 2002

Va

lue

(H

K$

mil

lio

n)

44,9

12

72,1

65

73,8

01

72,2

28

74,8

74

74,2

51

77,4

15

72,2

40

65,0

39

Domestic Export Re- Export Re- Exports of Chinese origin % of Total Domestic Export % of Total Re-Export

93,0

43 /

96,7

99

46,4

53 /

47,8

22

7,16

8 / 7

,652

94,4

72 /

99,3

08

104,

572

/ 111

,268

102,

832

/ 106

,669

88,5

31 /

90.9

51

101,

277

/ 110

,609

98,5

30 /

109,

912

34.6% : 7.3% 31.9% : 11.6% 31.9% : 8.2% 34.2% : 8.6% 39.7% : 8.4% 43.5% : 8.4% 42.8% : 8.0% 47.1% : 8.3% 49.7% : 7.7%

Source: Census & Statistics Department, HK Annual Digest of Statistics, 1995, 2000 & 2003 Edition.

Table 2: Domestic exports and re-exports

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Hong Kong Garments Export & Re-export

Contrary to the common view that Hong Kong nolonger has any significant home industries, thegarment industry still occupies a big part of HongKong’s exports. Even during the trend of de-industrialization, the domestic garments exportvalue rose from HK$45 billion in 1985 to HK$72billion in 2001 (Table 2). It is also the leadingearner in terms of domestic exports, at 49.7 percent of total domestic exports in 2002,6 and HongKong‘s largest manufacturing employer, with1,668 employers hiring 32,808 workers as ofMarch, 2003.7

Although the Hong Kong garment industry lostits momentum after China’s economic reforms in

the1980s, it has managed to survive because ofthe quota systems in world trade.

Of course, in terms of overall importance,garment production in Hong Kong can no longerclaim the same status it had in the economyduring the 1970s and 1980s. However, if weinclude trade re-exports, a significant portion ofthe Hong Kong’s GDP (14 per cent in 2002) is stillrelated with garments and, according to WTOfigures, would rank Hong Kong as second inglobal garment exports. The fact however, is thatdomestic garment production has been overtakenby the trade in garments since 1995.

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1 0

Starting from the 1980s, Hong Kong was not onlya leading production centre but also a hub forglobal garment sourcing - involving a total of16,403 employers and 91,754 workers,8

representing 7.7 per cent of Hong Kong’s total re-export value in 20029.

These figures do not take into account the factthat some garment manufacturing and tradingcompanies, while based in Hong Kong andmanaging the regional supply chain in severalcountries, do not have their products going

Of the 223 garment factories in Cambodia in2001, up to 28.1 per cent were solely or partlyowned by Hong Kong companies – the largestgroup of foreign investors.11

In 2002, there were about 9,000 garment factoriesin China employing 130 million workers. Of the

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From Manufacturer to Multi-business Trader

through Hong Kong as exports or re-exports. TheHong Kong Trade Development Councilestimated in a survey in 2000 that Hong Konghandles such offshore trading valued at HK$1,427billion, nearly the same size of Hong Kong’s totalre-exports.10

It is also worth noting, that some Hong Kongcompanies are now also moving towards buildingtheir own brand names and getting involved ingarment retail.

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Hong Kong Garments Business in the Region: Cambodia and China

3,000 garment factories in Guangdong Province,around 50 percent are Hong Kong manufacturers,employing nearly 500,000 workers.12

These figures point to Hong Kong as animportant player in the global garment market.

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1 1

PURCHASING PRACTICES13

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The Structure of the Global Supply Chain

Today’s garment supply chain can be divided intothree basic levels. The first level involves theretailers, brand name companies and importerswhich may house functions such as marketing,retailing, design, sourcing and merchandising.The middle level is comprised of the agents,trading houses and sourcing companies whosecore functions are not manufacturing. The thirdlevel includes the suppliers who carry outmanufacturing and subcontracting productionfunctions.

However, different companies keep differentfunctions in-house and rely on other companiesfor some functions. Some ODM manufacturershave their own designers in-house to producegoods for brand names, while some retailers havetheir own regional sourcing offices tocommunicate directly with suppliers in othercountries instead of going through tradinghouses.

“Purchasing practices” are the buying relationsand behaviours between all the differentmembers of the global supply chain (see Figure1). Given our specific concern for the impacts ofsuch practices on workers, we focus on thepractices around pricing, delivery time, orderingseasons and ordering amounts.

It is worth mentioning here that a company’scompliance team, which mostly monitorsconditions of production sites, usually has nolinks with the purchasing functions of the samecompany.

Source: Cunliffe, L. (2003) “The Garment Sector Business Model forPurchasing Practices Throughout the Supply Chain”, http://www.connectconsultancy.com, April 2003. (Slightly revised.)

Figure 1: A Simplified Garment Buying Model

Agent / Trading House

Sourcing Director Design / MarketingDirectors

Manufacturing / Buying/ Quality Assurance

Sourcing Department Designer / Marketing

Buyer / MerchandiserQuality Assurance

Supplier / ManufacturerSupplier /

Sourcing Office

Chief Executive ofRetailer / Brand Name

Supplier

ManufacturerManufacturer

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1 2

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The Production Flow of Suppliers

Production orders are usually confirmed afterback-and-forth negotiations on productspecifications, samples, size grading, sourcingmaterials, price, delivery time, etc.

According to interviews with merchandisers andfactory managers, the negotiation and samplingtime can last from seven days to half a monthbefore an order for production is confirmed.While most processes of communication andnegotiation can now be done quickly through theInternet, time is needed for the actual making ofsamples and for the courier to deliver them.Factory managers also say that Internet auctionsamong several suppliers is sometimes practiced.

Source: Liu (2003).

Within the overall production flow, the largesttime buffer would be the sewing section. Thesewing time largely depends on the amount oforders, the number of workers, the amount ofovertime they can deliver that can be drawn fromflexible production capacity such as temporaryworkers, or subcontracting to home-basedworkers or other factories. Given an increasinglyshortened delivery time and the growinginstability of orders (both in terms of time andamount), suppliers tend to stretch workers’ worktime, while at the same time suppressing theirwages.

Figure 2: Production in a Garment Factory (simplified)

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1 3

PROBLEMATIC PURCHASING PRACTICES

1. Shortened Delivery Times

➪ Six out of the eight factories interviewedreported that over the past two years, buyershave been requesting shorter delivery times.

➪ The average delivery time has decreasedfrom 3 months in 2001 to 2 months in 2003.Some buyers request as little as 15 days for adelivery.

Retailers and brand name companies tend toreduce their sales risks by ordering items ‘just intime’. They plan styles closer to, or even during,the relevant season and demand delivery just intime to sell the goods in the shops, right in linewith the latest fashion trends. This speed also cutsout warehousing costs and minimizes the cashneeded. According to a factory owner in SriLanka:

“Last year the deadlines were about 90days … [this year] the deadlines fordelivery are about 60 days. Sometimeseven 45 … They have drastically comedown.”14

Poor planning by brand name companies andretailers further increases the pressure forfactories: while they frequently delay sendingsamples to make last- minute changes, they stilldemand that the goods are completed on time.

ImpactFactory managers found that shortened deliverytime made production planning and projectionmore difficult. They have had to push workers towork overtime, and hire temporary workers atpeak production times instead of hiring moreworkers to be stationed in the factory. A manageradmitted that pushing workers to work overtimehas led to lower quality, more waste and morecompensation to buyers after-delivery due to lowquality; however, he could not afford the risk tohire more workers for unforeseeable orders.15

Merchandisers interviewed also acknowledgedthat buyers demanding short delivery time is themain cause of excessive overtime among workers.

2. Suppressed Prices

➪ All factories reported that buyers have cutprices.

➪ Prices have fallen between 10 per cent to 30per cent in the last three years.

➪ In some cases, 20 per cent of a factory’sorders made no profit, some orders even lostmoney.

Merchandisers confirmed that there is a 10 to 20per cent drop in export prices in the last 3 to 5years. Researches by Oxfam International16 inother garment producing countries reflected asimilar picture:

Morocco: 30 per cent decrease in recentyears.

Sri Lanka: 35 per cent decrease in the past18 months.

Honduras: 23 per cent decrease in the lastthree years.

Philippines: 20 per cent decrease from1997-1998.

The drop in prices and sales is commonknowledge in the business. The Hong Kong TradeDevelopment Council acknowledged that thistrend in the industry is not limited to low-endand mid-end segments.17 In the US, garmentretail prices have lagged behind inflation since1982 and have been falling since 1999. Price-cutting strategies are led by ‘high volume, lowprice retailers like Walmart and Target, and theirmarket share is growing. They protect their profitmargin by cutting the prices offered to the supplychain.18

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1 4

Export Price (100) + Mark Up (300) = Retail Price (400)

=

Merchandisers estimated the value chain ingarments in Table 3.

Table 3: Value Chain of Garment

In addition, retailers squeeze profits by requiringfees from suppliers. ‘Marketing contributions’, forexample can be levied on suppliers to pay forshop display space or for a place in a catalogue.When profits drop, some retailers send buyers outto get ‘profit contributions’ from suppliers.19

ImpactsIt is astonishing to learn that labour costs indeveloping countries are only 1 per cent to 5 percent of the overall retail price.20 So, some businessanalysts argue, a slight increase or decrease in thewages paid to workers will not affect the pricecompetitiveness.21

However, it still is true that there is a bigdifference between the division of the valueacquired by suppliers and retailers and thedominance of the retailers in the supply chain. Ifsuppliers are subcontracting from another middleagent, they will be left with a small margin tocontrol.

Though small, workers’ wages is one area thatsuppliers can control. So, wages are often beingsqueezed at the factory level through the piece-rate system; the denial of rest, holiday, maternityand sick leaves; violations of minimum wage,legal overtime limits and overtime pay; and non-payment of health and social insurance.

3. More Fashion Seasons, Smaller andMore Unstable Orders

➪ Two or three fashion ‘seasons’ each year wasonce an industry standard. Now, the norm issix to eight seasons.

➪ Order amounts were in the tens ofthousands, but they are much smaller now, inthe thousands or hundreds.

➪ Buyers divide one order into several smallerorders and request different delivery times.

A retailer-led market has also led to a shorterproduct cycle for profit return, and hence, morefashion seasons. Oxfam International researchesconfirm this; for example, one Spanish brand,Zara, can put together a clothing range in 7 to 30days.22 For the factories, more seasons meansquicker changes in style and smaller amounts foreach order.

ImpactsFactory managers say that more fashion seasonsand smaller orders can lead to less efficiency, asthey have less time to become familiar with aparticular product. Workers also complain thatfrequent changes in styles have led to a loss ofearnings, as they need time and practice to seweach particular item, and as they are paid perpiece, each adjustment means less earnings.

To reduce their commitment and risks, someretailers now follow a purchasing practice with asmall initial order, and after they see the marketresponse, a re-order. A factory manager reflectedthat although this secures some stability of ordersover a period of time, if the product does not sellwell, buyers of course will cut orders. This leads toa material loss for the factory.23

Quicker changes and smaller and more unstableorders also create difficulties and uncertainties inproduction planning, which in turn, lead to fewerincentives for further investments or

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1 5

195

175 175

70

150

130

150

215

A B C D E F G H

Ave

rag

e O

vert

ime

Wo

rk p

er M

on

th (

hrs

)

FACTORY RESPONSES AND IMPACTS ON WORKERS

Table 4: Overtime in Eight Factories in Guangdong, China

A Always overtime during the peak season. Usuallyuntil 2:00am.

B Always overtime. Usually until 12:00am. Longestperiod is 60 continuous hours.

C 3 hours everyday. Work until midnight during thepeak season. Longest period is 60 continuous hours.Workers faint.

D Work until 12:00am and on Sundays in the peakseason.

E Workers sometimes only rest 5 hours a day in thepeak season. High turnover because of longworking hours.

F Always OT until 10:30pm – 12:00am and 2 – 3overnight working sessions per month. Manyworkers faint. Workers reflected that too much OThas turned the factory into a prison.

G 4 hours OT every day, and 3 times over the past 2years workers had 36-hour shifts. High turnover. Thefactory takes order amounts of 3 million pieces/month while the capacity is only 1.6 million pieces /month.

H 5 hours OT every day until 12:00am. Several times,there are 24-hour shifts. Many workers faint.

Source: Liu (2003).

improvements. A factory director in Shenzhen,China, said:

“I am a typical Hong Kong entrepreneur.Hong Kong businessmen won’t invest hugemoney to wait for luck in the future. Thereis no point to wait for returns beyond fiveyears’ time.”24

This short-term outlook also makescommitments to and compliance with labourstandards problematic. Currently, costs ofcompliance are borne mostly by the suppliers,

instead of the buyers who normally ask for it.Seeing uncertainty in long-term returns, supplierspresent few or no incentives to improvestandards. One factory owner in Thailand saidthat:

“I spent three years getting up tocompliance with the SA8000 standard andthen the customer who had asked for it inthe first place left and went to China.” 25

As seen in the next section, some suppliers findan ‘alternative’ strategy: faking it!

1. Overtime

➪ 150 hours of overtime per month.

➪ Violation of China’s Labour Law which limitsovertime to 36 hours per month.

Excessive overtime in factories has become amajor concern in China for government, unionsand concerned organizations. Factory managers

in China and merchandisers in Hong Kong admita direct link between shortened delivery timesand more overtime. Overtime is also adopted as astrategy to compensate for the drop in prices.This can explain the frequent violation of thelegal limit of 36 overtime hours per month inaddition to the legal normal working hours of 40per week.

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■ Average OT per month on top of the legal normal work time: 157 hrs/month

0.5 0.5 1 4 1.5 1.5 0.5 0.5

Average Rest Day Per month:


1 6

2003-08-14 / China DailyThe All-China Federation of Trade Unions (ACFTU) yesterdayurged private and foreign companies to allow the establishmentof trade unions in order to safeguard the legal rights of theiremployees.

Some private and foreign companies in China have been tryingto prevent their employees from establishing trade unions,which are playing an increasing role in protecting workers’ legalrights, according to the federation.

“Parts of such companies, especially the branch operations oftransnational companies, refuse to set up trade unions,” saidGuo Wencai, director of the ACFTU Grassroots OrganizationDepartment.

Wang Ying, a division director of the department, said theUnited States-based leading international retailer Wal-Mart wasrefusing to allow the establishment of unions in its Chinesebranch operations.

“We’ve made increased efforts for several years but failed,” saidWang.

Sources at the headquarters of Wal-Mart’s China operations,based in South China’s Shenzhen, admitted there were no tradeunions in its stores in several Chinese cities.

“We have no trade unions and have never seen any explanationwhy no such unions exist,” said a public relations officersurnamed Huang reached by China Daily via telephone.

She said no senior Wal-Mart officer was available for commentas they are on holiday.

But ACFTU official Wang Ying said Wal-Mart’s official explanationwas that the multinational company did not allow theformation of trade unions in any of its global operations.

Wang said some owners of foreign-funded enterprises do abide

by China’s laws and regulations and encourage their employeesto join unions.

But she also said more work needs to be done to inform foreigninvestors of China’s laws on trade unions.

The latest ACFTU statistics indicated that China has 400,000foreign companies, but only one-fifth have set up trade unions.About 40 per cent of two million private enterprises have set uptrade unions.

“And workers need unions more than ever to represent and protecttheir interests,” said Wang.

Guan Binfeng, another ACFTU division director, said infringementof employee’s legal rights frequently took place in foreign andprivate companies without trade unions.

A survey conducted by the provincial Department of Labour andSocial Security of China’s economic powerhouse of Guangdongrevealed that 85 per cent of about 26 million migrant workers inthe province have to work for 10 to 14 hours every day andnearly half of them have no rest day, and most of them are notpaid for overtime.

The Chinese Government has stipulated that the maximumworking day is eight hours and that the working week shouldnot exceed 40 hours. Employers must double or triple wagespaid for extra hours.

Since last year, several State Council departments have joinedhands with the ACFTU to deal with payment arrears problems.

Unions are essential to protecting the interests and rights ofworkers and resolving worker-management relations, and thenumber of trade unions should be increased particularly in non-State-owned enterprises, said Guan.

Source: http://www1.chinadaily.com.cn/chinagate/doc/2003-08/14/content_254835.htm, downloaded on 4/9/2003.

Box 3 Companies Urged to Allow Trade Unions

This issue has attracted government concern. Asurvey by the Guangdong Province Departmentof Labour and Social Security revealed that 85 percent of the approximately 26 million migrantworkers in the province work about 10 to 14hours daily, nearly half of them have no day off,and most are not paid for overtime. (See Box 3)

Women workers in Cambodia also experienceforced and frequent overtime work of 70.9 hoursper month, on average. Though the workingconditions are less serious when compared to

women workers in China, the women report thatworking until 10 pm, or working on Sundays iscommon, as are occasional overnight shifts.Similarly, they are not paid the legal overtimerates.26

Excessive overtime also poses threats tooccupational health and safety. Back pain as along-term and hidden occupational disease is welldocumented among garment workerseverywhere.

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1 7

2. Wages

As discussed earlier, although wages and otherbenefits comprise a small portion of overall costsfor suppliers, these are the areas that arefrequently cut or reduced. Our research found thefollowing problems:

➪ Arbitrary piece rate.

➪ Wages below the legal minimum wage.

➪ Wages declining in the last 3 years.

➪ Reduced or non-existent insurance, OT rate,sick leave, maternity leave.

Because most workers are paid by the piece ratesystem, and most factories do not make unitprices clear in advance, workers only find outtheir income at the end of the following monthwhen the previous month’s wages are settled.Factories constantly vary unit prices at the end ofthe month such that workers’ income level (thatis, factory’s wage expense) remain more or lessthe same regardless of their output. Thus longerworking hours and higher production efficiencydo not result in increased incomes for workers.

None of the factories surveyed paid themandatory overtime pay.27 Although workers’overall income are above the legal minimumwage, after deducting the overtime pay theyshould have received, 15 per cent to 50 per cent ofworkers in each factory did not receive the locallegal minimum wage.

Workers reported that although overtime workhad increased over the last three years, incomesstill fell. Some management staff confirmed thisby indicating that production orders andnumbers of workers had increased over the lastthree years, but that there had been nocorresponding increase in total expenditure onwages.

Factoring in the non-payment of maternity leaveand insurance payments and benefits, wages forworkers still fall far below the legal standards.

All the factories surveyed effectively deniedworkers maternity leave. It was only under buyers’pressure that two factories introduced a 90-daymaternity leave. However, most of the womenworkers could not afford medical and childcareexpenses without medical insurance andchildcare services; so in the end, most of themreturn to their home provinces to give birth, andstay home for about one year to take care of thechild, then return to Guangdong to work again.

We find similar violations of minimum wagestandards in Cambodia. From a survey in 2001,only 36 per cent of the workers interviewedearned the minimum wage of US$45 (or US$40for those still on probation).28

3. Faking Codes of Conduct

Our research shows a significant contrastbetween the general impression of buyers’ goodwill and social responsibility by adoptingCorporate Social Responsibility (CSR) as part oftheir routine business practice and the actualsituation at the factory level.

In the face of price and delivery time pressuresarising from existing purchasing practices andseeing no long-term commitment from theirbuyers, suppliers create their own ‘counterstrategies’ to handle factory inspections instead offollowing the Codes of Conduct imposed bybuyers.

Some factories were found to have producedfalsified documents for their meetings withinspectors: work time records, wage records,factory rules and contracts. Some factories evenproduce various sets of fake documents to meetexpectations from different buyers.

Workers also recounted how they were sometimescoached to give certain replies to inspectors’questions. Some workers reported that they werepaid 50 to 100 RMB to lie. The costs and risks ofthis behaviour were acknowledged by some

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1 8

HIDDEN COSTHIDDEN COSTHIDDEN COSTHIDDEN COSTHIDDEN COSTSSSSS

“I would like the people who buy theseclothes to know their real price, in terms ofthe sacrifices we make to produce them.”– Marta, 34, a former garment worker inHonduras

Besides being paid lower wages and having fewerbenefits, workers also often bear long-term costswhich are largely hidden and not usually coveredby employers or governments.

Occupational Health and SafetyAs jobs in the garment industry demand greatdexterity as well as great repetition, many women

management staff, who, however, felt there wasnot much they could do about it.

In Thailand, a pregnant worker described whather personnel manager said to her before aninspection visit:

“He said the customer will ask ‘Do youwork overtime?’ and we have to say ‘No!’.But in reality, pregnant workers workovertime and on Sundays as well. Wesometimes work until two in the morningor until dawn, but we have to say that wework overtime only until eight in theevening… If we lie, we will get paid fourhundred baht (two days wages).” 29

Both workers and management staff questionedwhether buyers were genuinely concerned withworkers’ rights: they mentioned the limited timethat inspectors spend in the factory, their limitedknowledge of labour laws, carelessness inchecking documents, and that interviews withworkers were not conducted privately or thatthere are no interviews with workers at all.

The merchandisers we spoke to agreed that thereis no integration between social compliance andmerchandising, and frankly admit that profit is amore important concern than labour rights,pointing out that overtime work is the only wayorders can be delivered on time.

Some merchandisers who are actually responsiblefor social compliance monitoring admit thatcodes of conduct are only showcases whichactually do not affect the decision on where to puttheir orders.

The different approaches between merchandisersand inspectors was also noticed by some factorymanagement. Merchandisers tend to give excusesfor factories as long as they can keep prices low.This leads us to challenge the existing CSRmonitoring being focused only on factoryconditions, instead of including the buyers’ ownpurchasing practices, which greatly influencefactory situations.

suffer such ailments as back, leg and shoulderpain, and joint injuries. Poor ventilation in lint-filled rooms can also lead to debilitatingrespiratory diseases.

In 1993, the Kader Factory fire in Bangkok andthe Zhili Factory fire in Shenzhen sparked offregional and international campaigns that posedchallenges to the responsibilities that buyersshoulder in compensating injured workers andtheir families. (See also Box 6.) Workers’organizations and NGOs around the world sawthe imbalance between the considerable powerTNCs have in the supply chain and their relativelyfew responsibilities towards workers. The

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1 9

inadequate legal protection for workers and thefact that TNCs infringe on workers’ rights to savecosts have left workers to themselves shoulder thecosts of accidents, such as medical bills and thedifficulties that their loss of livelihood brings.

Women shoulder hidden costsOur research shows that women workers in Chinaare frequently denied maternity leave eventhough the law entitles them to 90 days of paidleave. Instead, they are forced to leave their jobs.Such a violation of rights leaves the womenshouldering the costs which employers should payfor.

Migrant workers coming from rural areas inChina are also not entitled to existing servicesthat their fellow residents in cities can use, suchas child care, health care and basic education.Many women workers choose to leave theirchildren behind with other family members intheir home village. If they bring their childrenwith them, they face expensive fees for privateschool tuition (as they cannot attend publicschools, since they are not registered as residents).These concerns are rarely addressed by factoriesor buyers.

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Short work lives cover long-term costsHong Kong’s garment industry was built up fromthe 1960s through the 1980s. Many womenworkers from that time are now, in their old age,unemployed, or engaged in part-time or casualwork, and generally quite poor. As a pensionsystem was not in place in Hong Kong before themid-1990s, most middle-aged and elderly womenworkers have little or no protection for their lastyears.

It is discouraging to see a similar thing happeningwith women workers in China. While there is anold age pension system in place, itsimplementation is administratively dividedamong different cities and provinces. For amigrant worker in Guangdong, contributions tothe system are not transferable back to thehometown, where the workers would live afterretirement, so most migrant workers disregard itor are reluctant to contribute. Some factories inGuangdong use this as an excuse not to payemployers’ contributions.

In Cambodia, workers also worry about how longgarment factories will stay once the Multi-FibreAgreement is phased out. There have beenprojections that, without the niche of availablequotas, most factories will relocate to Chinawhere other costs are more competitive.


2 0

ADDRESSING THE PROBLEMS

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Governments: Labour Laws & Social Policies

Governments have the primary responsibility forprotecting the rights of its workers, but this isoften times ineffectual. The problem is not alwaysa lack of good legislation. Many governmentshave good labour laws, but weak enforcement.

Governments also have a responsibility toshoulder the social costs of precariousemployment in the global supply chain, which arecurrently being borne predominantly by womenworkers and their families. Long working hours,exhaustion, poor nutrition and a lack of adequatesick or maternity leaves mean that the womenand their families pay heavy social costs in theshort and long term. The working life of thesewomen is often short, and the lack of adequatehealth insurance or pensions means that they arelikely to be left with poor health, few savings anda life of chronic poverty. Governments mustensure that employers provide a reasonable workschedule, stable employment, a living wage and ahealthy and safe working environment.

To enable women workers to cope with familyobligations, they must ensure there is adequatematernity, sick and family leave provisions, andchild care facilities for women with youngchildren. Governments must also provide properhealth and unemployment insurance schemes.Retrenched workers must be provided withmeaningful vocational and re-employmenttraining, and not be treated simply as disposableand transient parts of the workforce. They mustalso bear the burden of the long-term costs towomen after they cease to be employed workers –which means adequate pension schemes.

Unfortunately, the opposite is the trend.Governments tend to reduce support for theprotection of workers and former workersthrough pensions, leave provisions, and otherbasic employment benefits.

Some of the costs of providing these benefitsshould be borne by employers, through increasedcontributions to health, social security andpension schemes. Sourcing companies – thosethat do not employ the workers but buy theproducts that they make, and therefore benefitfrom their labour – should also contribute to thecosts either directly or indirectly.

One of the problems faced by workers is thatlabour-intensive industries tend to move fromcountry to country to avoid organized labour orhigher labour costs. In some cases, it is theinvestors that move; in others, it is the buyers whoreduce orders in one country and begin sourcingsomewhere else. The result is always the same:factory closures leave behind unemployedworkers, usually with little or no severance pay orother compensation. In the long term, this trendof relocations has to be addressed, as it is a majorfactor undermining the bargaining power ofworkers, even in places where workers areorganized.

In the short term, governments have an obligationto ensure that when factories close, the companiesinvolved provide adequate severance pay, and thatretraining and other assistance is available forretrenched workers. More affluent governmentsshould also provide funding to help regions thatare particularly negatively affected.

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2 1

Similar to the situation in China, workers’organizations and NGOs in Cambodia alsoacknowledge that the labour law is good butweakly enforced. Violations of wage standards,forced overtime and denial of sick leaves arecommon. In addition, women workers comingfrom the rural areas bear the heavy social stigmaof having to work in city.

China released its first labour law in 1995.Generally regarded as satisfactory, the lawremains weak on various labour standards and onimplementation methods; because of this,provincial, county and local governments andcourts have a lot of room for interpretation.Inconsistency is therefore the norm. Unions,NGOs and academics have also identified severalbarriers to redress on labour violations, such asthe long legal proceedings and the fact that caseshave to be filed within 60 days of the violation.Like many other developing countries that are

In Hong Kong, there is no legal protection onmaximum number of working hours. In addition,government has refused to establish a minimumwage. Another significant loophole identified byunions and NGOs is how factories avoid payingworkers severance pay by keeping the number ofwork hours to just within the legally-definedminimum. This has led to a significant drop inwages since workers work under a piece-ratesystem. With such reduced wages, workers thenopt to resign on their own, hence losing theseverance pay they deserve.

In the US-Cambodia trade agreement, the quotafor exports to the US are contingent oncompliance with labour standards, as monitoredby International Labour Organization. This exertssome pressure on the industry and the governmentto improve implementation. However, workers’organizations and NGOs find the mechanismvulnerable to protectionism by the US.

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Cambodia

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China

strengthening their labour laws, China also lacksthe capacity and basic infrastructure forimplementing, enforcing, and monitoring the law.The widespread violations of work timerestrictions clearly reflect this. Besides filling inlegal loopholes and strengthening enforcementand monitoring, legal education is critical.

As stated by the Chinese Central Governmentitself, the overall social security system urgentlyneeds reform to address the country’s changingeconomic and social environment.

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Hong Kong

The lack of a proper retirement system has alsoled to poverty among today’s middle-aged andelderly workers. They do not benefit from theMandatory Provident Fund (MPF) introduced in2000, after many factories had moved to China.Furthermore, allowing companies to offset MPFpayments with severance pay reduces workers’benefits.

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2 2

In the 1970s, the governments that make up the OECD agreedto establish a set of international voluntary guidelines orstandards that its member governments would promote amongthe companies in their respective countries. In 1976, the OECDadopted a Declaration on International Investment andMultinational Enterprises. Within this was a set of guidelines forthe multinational enterprises of OECD countries. In June 2000, asa result of a comprehensive review, a revised version of theGuidelines for Multinational Enterprises was adopted by theOECD to include all the rights set down in the core ILOConventions, protect the ‘whistleblowers’, and implement the‘precautionary principle’ in regard to environmental impact. Theyalso made it clear that OECD governments expect companies torespect the Guidelines wherever they do business and not just inOECD member countries.

Although providing a useful framework, the Guidelines are stillinsufficient. They are not binding or legally enforceable oncompanies, and lack an effective monitoring and verificationmechanism. Nevertheless, unions and other organizations haveattempted to use the Guidelines as a mechanism for protecting

workers rights by making complaints against companies thatthey feel are not compliant. There are several problems with thisapproach, including: (1) the absence of any clear timeframe fordealing with complaints, (2) the lack of transparency, and (3)the failure to conduct proper investigations.

There is a need and scope for supporting and strengthening thismechanism. The OECD can encourage governments to take asystematic approach to operationalizing it, so as to ensure thatcomplaints are dealt with openly and effectively, and that boththe substance and the process of the complaint are madetransparent.

An effective way of using the Guidelines is for them to be a pre-condition for companies to receive government contracts orassistance. In the Netherlands, for instance, companies whichwant to be eligible for export credit support are obliged to signa statement that they have taken note of the OECD Guidelinesand will implement them to the maximum extent possible. Ifcompanies breach the Guidelines, they lose governmentsupport.

Box 4: Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises

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Private Sector: Corporate Social Responsibility and Codes of Conduct

Given the previous discussions, it is clear thatcompanies must change their way of doingbusiness. Some are already doing so throughinitiatives in Corporate Social Responsibility(CSR) and Codes of Conduct (CoC). Many issuesremain, however. For instance, the monitoring ofcompanies’ Codes of Conduct mostly relies oncorporate staff or specialized monitoring bodies.Workers, however, who best know the factorysituations, are rarely involved. Unions, NGOs andconsumer campaigns have been calling for theiractive participation as well as for moretransparency of monitoring exercises, includingreleasing of reports and disclosing lists ofsupplier factories.

Some governments have attempted to imposestandards on companies that operate overseasthrough legislative means. There have been

attempts to introduce legislated Codes of Conductinto some Northern parliaments for companiesoperating in the South; however, none have beensuccessful. Among other things, they tend to runinto problems in the courts regarding jurisdictionfor offences committed outside their nationalboundaries.

Less ambitious but more achievable in the shortterm is legislation that requires companies toreport regularly and publicly on theirperformance with respect to basic labour rights(and other standards) to their home government.The method and reliability of that reportingshould be independently assessed by the homegovernment. Penalties for non-compliance mightinclude the withdrawal of access to governmentcontracts and assistance.

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2 3

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Consumers

Consumer campaigns have increasinglydemonstrated the power of consumers telling thebrand name companies that they should radicallyimprove their business practice. Consumers are

increasingly mobilizing their purchasing power toexert collective influence on companies’ policiesand practice.

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Beginning in the early 1990s, companies involved in themanufacture or marketing of brand-name goods producedinternationally, often through outsourcing, began to formulateand adopt codes of conduct covering labour practices that weremeant to apply to their subcontractors and suppliers. Theseunilaterally adopted company codes of international labourpractice are the new codes of conduct. Codes of conduct forbusiness are not new – businesses have been using them foryears to address various public concerns such as consumerrights, product safety, or environmental protection. Oftenbusinesses apply ethical behaviour codes to their employees.Codes of conduct for international business activity are not neweither. In the 1970s, concern over the growing power ofmultinational companies led two international organizations toadopt codes for international business: the ILO TripartiteDeclaration of Principles Concerning Multinational Enterprisesand Social Policy and the OECD Guidelines for MultinationalEnterprises. These international instruments sought to protectthe sovereignty of countries by defining the responsibilities,including the social responsibilities, of international business.

Source: Wick, I (2003) WWWWWorkorkorkorkorkers’ers’ers’ers’ers’ TTTTTool or PR Ploool or PR Ploool or PR Ploool or PR Ploool or PR Ploy? – A Guide ty? – A Guide ty? – A Guide ty? – A Guide ty? – A Guide to Co Co Co Co Codes ofodes ofodes ofodes ofodes ofIntIntIntIntInternaernaernaernaernational Labour Practional Labour Practional Labour Practional Labour Practional Labour Practice (3tice (3tice (3tice (3tice (3rrrrrddddd Re Re Re Re Revised Evised Evised Evised Evised Edition)dition)dition)dition)dition), Friedrich-Ebert-Stiftung & SUDWIND Institute for Okonomie and Okumene.

The root causes for the emergence of codes of conduct lie inthe failure of governments and multilateral agencies to harnessexcessive and formidable excesses of transnational capitalism.TNCs have made huge profits by exploiting the cheap labour inthe export processing zones (EPZs) in Asia and the free tradezones in Central America, where repressive governments stifleunrest and labour organizing in order to attract foreigninvestments. The high fluidity of transnational capital, especiallyin labour intensive, low-tech industries, has resulted in a global“race to the bottom” of plunging wages. In 1991, the mega USjeans maker Levi-Strauss was reported to use young femalelabour in near-prison working conditions and, in an attempt tosalvage its stained public image, it responded by drafting thefirst corporate code of conduct. Since then, human rightsactivists, trade unions and other non-government organizationsin Northern America and Europe have strategically launchedmany consumer campaigns. Kathy Lee, the Gap, Nike, Reebok,Disney and Wal-Mart, in addition to many other labels, have allbeen targeted, and many corporate codes came into beingbecause of scandals exposing TNCs’ labour exploitation in Asianand Central America. However, the effectiveness of such codes isquestionable, as investigations continue to unveil exploitativepractices in many companies’ production processes; the codesseem to work largely as public relations tools for the TNCs. Aheated debate has emerged in the last couple of years aboutadequate ways to monitor compliance with codes: consensusconcludes that without adequate monitoring and verification,codes of conduct remain superfluous.

Source: Labour Rights in China (1999) No Illusions:No Illusions:No Illusions:No Illusions:No Illusions: A A A A Against the Globalgainst the Globalgainst the Globalgainst the Globalgainst the GlobalCCCCCosmetic SA8000osmetic SA8000osmetic SA8000osmetic SA8000osmetic SA8000, Hong Kong.

Box 5: A Background of Corporate Social Responsibility (CSR) and Codes of Conduct (CoC)

Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economicdevelopment while improving the quality of life of the workforce and their families as well as of the local community and society atlarge to improve their quality of life.

– World Business Council for Sustainable DevelopmentSource: CCCCCorporaorporaorporaorporaorporattttte Se Se Se Se Social Responsibilitocial Responsibilitocial Responsibilitocial Responsibilitocial Responsibility:y:y:y:y: TTTTThe he he he he WBSCDWBSCDWBSCDWBSCDWBSCD’’’’’s Journeys Journeys Journeys Journeys Journey. Downloaded from http://www.wbcsd.ch/DocRoot/wYlpnLQLIjKQfQ3lk0Oj/csr2002.pdf,

22nd December, 2003.


2 4

“I used to think that a union was notimportant but after I got involved and metworkers and unions in other factories, Irealized how important it is to protectworkers’ rights. If a worker has a problem,they don’t know what their rights are. Theunion can advise them and help themsolve it. I have gained lots of experienceand now I know about the law. If I don’tuse it to help the workers, who will?” 30

Workers everywhere have an increasingawareness of their rights and assert this innumerous ways: publicly or privately, individuallyor collectively. As the ones who know best aboutwhat he or she needs and wants, workers shouldbe further encouraged and empowered toparticipate in building a just and sustainablesocial and economic system.

In Hong Kong, the workers’ movement in thegarment sector has been one of the most active

In 1993, two disastrous factory fires happened in Bangkok,Thailand, and Shenzhen, China, leading to the injury or death ofnearly one thousand workers. The two fires had manysimilarities. Firstly, workers in both factories were mostly youngwomen (including child workers) from the rural villages whohad come to work in the cities. Secondly, both factories wereowned or partly owned by Hong Kong investors making toys forfamous brands in US or Europe. Finally, both cases involvedbribery of government officials to escape prosecution. Even afterthe fires, both managements were trying to find scapegoats toavoid paying compensation.

After the Kader Fire in Bangkok in May of 1993, 25 labour rightsNGOs and unions in Thailand and Hong Kong responded quicklyto form a Kader Fire Victims Support Group. They filedcomplaints to the government and the company and called forproper compensation. Actions included bringing workers andtheir families to Hong Kong and putting pressure on the relatedHong Kong company. The movement attracted significant mediacoverage as well as social concern, both in Thailand and HongKong, and was successful in terms of putting pressure andbuilding cross-border worker solidarity. Finally, the victims andtheir families were compensated.

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Workers

and organized. Bringing together mostly womenworkers, the movement has been contributing bymaking policy and labour law proposalsregarding such issues as maternity leave,retirement schemes, work stoppage and lay-offcompensation, labour protection and socialpolicies.

Though heavily affected by the decrease in thenumber of garment workers, the unions haveactively responded to recent labour importationpolicy proposals and issues in gender inequality.Workers have also been supporting regional andinternational campaigns on labour rights issues.Whether now working in other sectors, unstablyemployed, under-employed or unemployed,women workers who had been working ingarment factories in Hong Kong have shownstrong affiliation to women workersorganizations or unions, often sharing theirexperiences with women garment workers inother countries.

Six months after the Kader Fire, in November, 2003, the Zhili Firein Shenzhen generated public concern. NGOs and unions actedto build a network with NGOs and unions in Europe to placepressure on the brand, Chicco, for which the Zhili factory workerswere producing goods. The Zhili Fire compensation claims lastedfor years. In 2000, Chicco finally established a fund for the Zhiliworkers, yet claims for compensation are still under debate.

Among the lessons NGOs and unions learned in 1993 was thatwith the fluidity of investments and the rampant violations oflabour rights, workers’ safety and their livelihoods could only beproperly protected with the mobilization of workers. Themomentum generated in 1993 consolidated into a network ofvictims and concerned groups in the region to exchangeexperiences, share information, study policies and laws and offermutual support, from worker education to campaigns. InSeptember 1997, the Asian Network for the Rights ofOccupational Accident Victims (ANROAV) was formallyestablished with member organizations from Hong Kong,Thailand, Japan and Sri Lanka. Short and long term plans weredeveloped in the annual conference while individual membersalso developed their own plans in respective countries, nownumbering 12. In 2002, the network further extended to includea group from Taiwan.

Source: Translated from Wong, M (2003) “The 10th Anniversary of the Kader and Zhili Fires – the origin and works of ANROAV”, in Oxfam In AOxfam In AOxfam In AOxfam In AOxfam In Accccctiontiontiontiontion Summer 2003,Oxfam Hong Kong

Box 6: The Kader and Zhili Fires and the Asia Network for Victims’ Rights

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2 5

MAKE TRADE FAIR:OXFAM HONG KONG RECOMMENDATIONS

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Companies that own factories in developing countries

The social responsibility of business starts in the factory – and improving factory management is thefirst and most immediate step towards better employment and working conditions. Owners andmanagers should:

☛ Follow the labour law in the country. This is a baseline that they should neverdisregard.

☛ Commit to adopting employment and management practices that protect,rather than undermine, the rights of all workers, including short-term and sub-contracted workers.

☛ Recognize the right of all workers to join trade unions and bargain collectivelyand make full use of unions for resolving workers’ concerns.

☛ Provide a working environment sensitive to women workers’ needs includingchildcare facilities, lighter duties for pregnant women and breast-feeding breaksfor mothers. Establish and implement policies that promote equal opportunitiesin the workplace.

☛ Work with retail and brand company buyers to rectify any non-complianceissues on labour standards.

☛ Work with trade unions/workers’ organizations or NGOs to promote labourrights’ training.

The corporate social responsibility movement began tackling labour conditions by focusing onmonitoring producers’ compliance with codes of conduct. But until companies acknowledge that theirown sourcing and purchasing practices are one of the root causes of poor labour standards, they willnot resolve the problems.

Companies should ensure that they find ways to:

1. make respect for workers’ rights integral to the company’s vision;

2. integrate that commitment into sourcing and purchasing practices;

3. promote workers’ empowerment to ensure that better practices result in betterterms and conditions for workers.

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Retail, sourcing, trading and brand companies


2 6

1. Make respect for workers’ rights integral to the company’s vision

☛ Commit to ethical labour standards in the supply chain at the highest levelof corporate management and ensure it is integrated throughout thecompany.

☛ Adopt a code of conduct based on international labour standards andensure that it is interpreted with a gender perspective.

☛ Create an ethical trade team that is equal in corporate hierarchy tomerchandisers and make addressing purchasing practices a central part ofits mandate.

☛ Train merchandisers to be aware of the possible impacts of theirnegotiations on labour standards.

☛ Ensure that merchandisers’ and managers’ incentives and performanceassessments are structured to reward, rather than undermine, ethicalpurchasing.

☛ Provide information to shareholders, to consumers and to civil society,about labour standards in the company’s supply chains and ongoingpolicies to improve them.

2. Integrate that commitment into sourcing and purchasing practices

Labour standards as a key selection criterion

☛ Make ‘good’ or ‘improving’ labour standards a criterion equal inimportance to quality and delivery in selecting and assessing suppliers.

☛ Work towards buying only from approved suppliers.

☛ Give approved suppliers - with good or improving labour standards - thestatus of being preferred sources.

Delivery times

☛ Review the company’s procedures for placing orders to identify internalinefficiencies or delays – such as rush orders and sample delays or changes– that leave suppliers with inadequate production or delivery time.

☛ Share order planning information with suppliers to enable them to planbetter.

☛ Repay the costs incurred by suppliers due to significant delays andchanges made by buyers when placing orders.

☛ Agree on guidelines for the above with suppliers.

Pricing

☛ Ensure that pricing is compatible with the supplier meeting labourstandards as set out in the code.


2 7

☛ Where the risk of price fluctuation is carried by the supplier, pay a pricethat reflects that additional risk.

☛ Ensure that price negotiations do not undermine the feasibility of thesupplier complying with labour standards.

Commitment to working with producers

☛ If a supplier is improving labour standards and this raises prices, continueto source from that supplier.

☛ Support suppliers, where necessary, in building their managerial andorganizational capacity so that productivity can be raised without placingworkers under excessive pressure – and ensure that workers benefit fromthose productivity improvements.

☛ Assess the impact of the company’s purchasing practices on employmentand working conditions in the supply chain and ensure that suppliers canprovide feedback on the pressures they face without jeopardizing theircontractual relationship.

3. Promote workers’ empowerment - to ensure that better sourcingpractices result in better conditions for workers

☛ Work with trade unions/workers’ organizations or NGOs to promotelabour rights’ training.

☛ Support the creation of representative workers’ organizations for workersat all levels of the supply chain.

☛ Conduct workplace inspections in conjunction with workers, trade unionsand credible local organizations, ensuring that all types of workers areinvolved.

☛ Engage in constructive dialogue with global union federations andestablish ongoing dialogue about the rights of workers in the company’ssupply chains worldwide.

☛ Ensure that inspections address terms of employment including: worktime; wage; restrictions on organizing; access to paid maternity leave, sickleave and annual leave; employment status of workers on temporarycontracts, home workers and sub-contracting.

☛ Remediation plans should address the roles and responsibilities of theproducer, any mid-chain suppliers and the merchandiser in resolvingproblems identified.


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○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Business associations and manufacturers’ organizations

As representative bodies of the industry, business associations and manufacturers’ organizations shouldpromote socially responsible practices. They should:

☛ Promote (through special meetings, conferences or training for members)better CSR implementation to cover purchasing practices.

☛ Initiate discussions with brand name companies, retailers and internationalbusiness associations on improving purchasing practices and introducing aCommon Code for the industry.

☛ Work with trade unions/workers’ organizations or NGOs to promote workersrights’ training (especially on OSH and workers organizing).

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Hong Kong SAR Government

The Hong Kong Government has been playing a facilitating role in regional trade and working for abetter environment for businesses based in Hong Kong. It should now consider extending this role tocover social and labour rights concerns for sustainable social development in the region and the world.

☛ The Textiles Advisory Board should promote and facilitate better CSRimplementation in the garments industry.

☛ The Textiles Advisory Board should initiate discussions with brand namecompanies, retailers and international business associations on improvingpurchasing practices.

☛ The Government should integrate considerations of labour rights (in HK and inother countries) in its trade policy formulation.

☛ The Government should explore the ways to monitor behavior and practices ofcompanies based in Hong Kong but operating regionally or globally.

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Hong Kong Public

As global citizens, people in Hong Kong should express their concern, take action on labour issues, andextend support to workers. They should:

☛ Support labour rights campaigns and show solidarity with workers, locally,regionally and internationally.

☛ Express concern over the conditions in which consumer goods are produced.

☛ Support fair trade by purchasing goods marked with a fair trade logo.


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Some companies have recognized and started to tackle some of the problems created by theirpurchasing practices. On a wider scale, the following initiatives could help to bring significantimprovements in employment and working conditions:

☛ Reviewing ordering processes: The Swedish fashion retailer, H&M, is reviewing its ownordering practices after several months of excessive overtime in two suppliers’ factories inChina and Turkey. “There are so many people involved here at H&M – technicians, qualitycontrol, merchandisers and compliance – that no one in our company has the full picture ofhow the orders went from beginning to end” said Ingrid Schullstrom, Manager of CorporateSocial Responsibility. “So we are reviewing what happened during those months – were therelate approvals or fabric delays or quality problems? Were we part of the problem here? Weneed to understand the full picture and then work internally and with our suppliers towards asustainable solution.” Marks and Spencer, a major UK retailer, is far into this process of‘critical path management’ for its garment supply chains. “One major reason for long hoursin factories is poor production planning – and responsibility for that starts back with us,” saidMuriel Johnson, Head of Social Compliance. In early 2003 the company enhanced its onlinedatabase for tracking the status of worldwide orders, by including key dates andresponsibilities for making internal decisions, to ensure that producers’ lead times are notcut short.

☛ Priority to approved producers: Premier Brands sells tea to several UK supermarkets,sourced from more than 150 estates in 12 countries. By building long-term relationshipswith producers and paying for the social audits, the company is moving towards buyingonly from approved producers. “Five years ago, around 60 percent of our suppliers wereapproved – today it is almost 90 percent,” said Michael Pennant-Jones, Ethical SourcingManager. “And getting on our approved supplier list acts as a carrot for producers to raisetheir labour standards.”

☛ Working with global unions: In 2001, the banana company, Chiquita, signed aninternational framework agreement with the International Union Federation (IUF) for foodand agriculture. The agreement creates a forum for addressing workers’ rights violationsarising in the company’s worldwide operations and supply chains. “[Most] multinationalcompanies... refuse to accept global responsibility for industrial relations,” said PeterRossman, Communications Director at the IUF. “That is why agreements like this one are avaluable tool for bringing industrial relations into the new environment of globalisedproduction.”

☛ Supply chain transparency: In 2002, more than 20 major clothing retailers in Australia,including the Cole Myers Group (with Target and Kmart) and David Jones, signed up to acode for ethical retailers, and now provide the Australian clothing and footwear union,TCFUA, with details of their in-country suppliers, prices paid, and turn-around timesdemanded. Linking this to information from suppliers and producers who have likewisesigned up to codes, the union now has detailed and current data on these supply chains.Although the agreement covers only clothing in Australia, it is an important precedent forgreater transparency on purchasing practices.

Source: Oxfam International (2004) p.86.

Box 7: Good Initiatives in Sourcing and Purchasing Practices


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1 P. Gibbon (2003) At the Cutting Edge: UK Clothing Retailers’ Global Sourcing Patterns andPractices and Their Implications for Developing Countries, Copenhagen: Centre forDevelopment Research. Quoted in Oxfam International (2004), p.49.

2 UNCTAD (2002), World Investment Report 2002: Transnational Corporations and ExportCompetitiveness, New York and Geneva: UN, p.129.

3 Oxfam International (2002), Rigged Rules and Double Standards: Trade, Globalization andthe Fight Against Poverty, Oxford: Oxfam International, p.107.

4 UNCTAD (2002), p.130.5 UNCTAD (2002) Quoted in Oxfam International (2004), p.49.6 Total domestic export value at HK$130,926 million in 2002 . Source: http://

garments.tdctrade.com/, 19th December, 2003.7 “Profiles of Hong Kong Major Manufacturing Industries – Hong Kong Clothing Industry”,

downloaded from http://www.tdctrade.com/main/industries/ipclot.htm, 28th November, 2003.8 “Profiles of Hong Kong Major Service Industries – Import and Export Trade”, downloaded from

http://www.tdctrade.com/main/si/spimex.htm, 28th November 2003.9 Total re-export value at HK$1,429,590 million in 2002. Source: http://garments.tdctrade.com/,

19th December, 2003.10 “Profiles of Hong Kong Major Service Industries – Import and Export Trade”, downloaded from

http://www.tdctrade.com/main/si/spimex.htm, 28th November 2003.11 Womyn’s Agenda for Change (2002), Labels to Wear Out: A Social Study of Women Workers in

the Cambodian Garment Industry, Cambodia.

12 (2003) 2003. (ChinaStatistics Yearbook 2003) Estimation of percentage of Hong Kong manufacturers in Guangdongby Liu (2003).

13 This section draws on researches commissioned by Oxfam Hong Kong in April 2003, eachlooking at purchasing practices differently, yet all focusing on getting basic knowledge of thecompanies’ practices, any recent changes, and the impact on workers’ conditions. It also drawson findings from Oxfam International’s report, “Trading Away Our Rights”, in which purchasingpractices in the global fresh produce industry is a concern. We would like to emphasize that,although we focus on the garment industry in this paper, purchasing practices are not exclusiveto this industry; they extend across the sectors and around the world.

14 Oxfam International (2004), Trading Away Our Rights: Women Working in Global SupplyChains, Oxford: Oxfam Internatinal, p.51.

15 Liu Kai-ming, Research Report on Global Purchasing Practices and Chinese Women Workers,Shenzhen: Institute of Contemporary Observation, (2003).

16 Oxfam International (2004), p.52, 54, & Ascoly & Zeldenrust (2003), p.24.17 The Hong Kong Hong Kong Trade Development Council, “Profiles of Hong Kong Major

Manufacturing Industries – Hong Kong’s Clothing Industry”, downloaded from http://www.tdctrade.com/main/industries/t2_2_34.htm, 28th November 2003.

ENDNOTES


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18 Oxfam International (2004), p.54.19 Oxfam International (2004), p.54.20 Ascoly & Zeldenrust (2003), East and Southeast Asia Regional Labor Research Report, Clean

Clothes Campaign, p.25.21 Birnbaum (2000), Birnbaum’s Global Guide to Winning the Great Garment War, Hong Kong:

Third Horizon Press, p.144-146.22 Oxfam International (2004), p.5123 Liu (2003).24 Oxfam International (2004), p.54.25 Oxfam International (2004), p.57.26 Womyn’s Agenda for Change (2002), Labels to Wear Out: A Social Study of Women Workers in

the Cambodian Garment Industry, Cambodia.27 According to Chinese Labour Law, overtime pay should be 150 per cent of normal wage for

overtime work from 1- 36 hrs/month; 200 per cent for overtime work above 36 hrs/month; 300per cent for overtime work on holidays.

28 Womyn’s Agenda for Change (2002).29 Oxfam International (2004), p.62.30 Words from Prem, a union committee member in a Thai factory. Quoted in Oxfam International

(2004), p.24.


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REFERENCES

Major References

Oxfam International (2004) Trading Away Our Rights: Women Working in GlobalSupply Chains. Oxford: Oxfam International.

Research Reports Commissioned by Oxfam Hong Kong

Liu, Kai-ming (2003) Research Report on Global Purchasing Practices and ChineseWomen Workers. Shenzhen: Institute of Contemporary Observation.

Pun, Ngai (2003) The Precarious Employment and Hidden Costs of Women Workersin Shenzhen. Hong Kong: Chinese Women Workers Network.

Other References

AMRC (2003) Asia Pacific Labour Law Review: Workers’ Rights for the New Century.Hong Kong: Asia Monitor Resource Center.

Ascoly, Nina & Zeldenrust, Ineke (2003) East and Southeast Asia Regional LaborResearch Report. Clean Clothes Campaign.

Birnbaum, D. (2000) Birnbaum’s Global Guide to Winning the Great Garment War,Hong Kong: Third Horizon Press.

Oxfam Hong Kong (2003) The Multi-Fibre Agreement and the Agreement on Textilesand Clothing: Looking at Winners and Losers in the Textile Trade. OxfamHong Kong (Internal Discussion Paper).

Oxfam International (2002) Rigged Rules and Double Standards: Trade,Globalization and the Fight Against Poverty. Oxford: Oxfam International.

UNCTAD (2002) World Investment Report 2002: Transnational Corporations andExport Competitiveness. New York and Geneva: UN.

Womyn’s Agenda for Change (2002) Labels to Wear Out: A Social Study of WomenWorkers in the Cambodian Garment Industry, Phnom Penh: Womyn’sAgenda for Change.

labour_report2004_en

Documents

unfair practices

unfairglobal trade practices

workers conditions

outpurchasing practices

business practices

hong konggarment companies

women workers

value of workers