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Discussion Question: Can global brands create a just and fair supply chain system? Take a position and defend it.
QUESTION - CAN GLOBAL BRANDS CREATE JUST SUPPLY CHAINS?
Ans: Global brands are constantly competing with each other to achieve cost minimization in order to achieve their targeted profit margins and to maintain market share. Over the years they have identified supply chain and operations as the potential source of cost optimization and for that they have outsourced manufacturing operations to emerging markets which are mostly low-wage countries. Although it has revolution the way things are produced and transported from one manufacturing hub to the entire world which is generally attributed as one of the fruits of globalization but there are serious qualms regarding the working conditions, wage level and the general amenities provided to the workers. Previously the global brands tried to shrug of the responsibility from their shoulders as they were not directly responsible for such deplorable environmental conditions for workers in a foreign country but the globalization that had made it possible to tap into cheap labour, that same globalization has also made it possible for potential customers to know that shopping at Nike, Walmart or similar other brands leads to human exploitation at some other part of the world. The incidents with Nike and the collapse of building at Rana Plaza in Bangladesh has severely aggravated these issues with customers rejecting brands with such tainted supply chain operations. These labour issues had been historically regulated by governments or unions.
The labour regulations have evolved over the years with most of the 20th century entrusting the job of these regulations to national authorities which included labour commissions, unions, laws and company policies. Globally these issues were regulated by International Labour Organizations (ILO). However as business models evolved and with the advent of globalization manufacturing processes shifted from developed economies to poorer ones because of low wages, this framework of regulation became difficult to implement. Then came the participation of NGOs towards the beginning of 90s wherein they made demonstrations about the exploitation of global brands and urged consumers to buy such products which breeds discrimination and inhuman working conditions in the developing world. This paved the path for self-regulation among a lot of industries who wanted to counter this onslaught of NGO protests. These industries resorted to self-regulation to combat the menace of exploiting human necessities in the developing world. This report makes a critical analysis of these self-regulations and whether they have proved to be successful in improving working conditions at the required places (Busse, 2004).
Although several efforts have been made towards improved labour standards but the situation in majority of the manufacturing hubs is abysmal with hazardous working condition, child labour, excessive working hours and poor wages. The most popular and ubiquitous method of implementing self-regulation has been the use of corporate code of conduct. Global giants like Nike, HP, Apple, etc. have resorted to this mode of regulation in order to ensure fair compensation, healthy and safe working conditions and rights of association. Several private third party players including NGOs have been roped in to conduct audits at the supplier premises to represent their good corporate citizenship in front of consumers. But in spite of the good intentions, quality leadership, organizational design and even resources being allocated to these supplier premises the improvements have been miniscule or incremental (Frölich and Haile, 2011).
This should encourage one to identify the root cause of these abysmal and unethical working conditions. Since cost optimization is the goal of every corporate entity we cannot ignore that but there can be options which respect the humanitarian requirements and don’t exploit the needy. The emerging economies or the low-wage countries lack infrastructure, technical expertise and management systems which can address these issues. So therefore instead of creating a compliance regime or policing, effort should be given towards imparting expertise, knowledge and organizational skills to implement the best practices in the industry. The global brands have enough technical and organizational resource which can be shared with their suppliers with a view towards improving their operations which maintain a fair and equitable working environment for the workers. This can also lead to the improvement of financial position of the supplier and improved profit margins thereby leading to an increase in the wages for their workers. Investment in operations and management should also be directed towards skill improvement of the grass root level workers so that they can contribute towards maintain the benchmark standards. This can be seen as a self-enriching initiative wherein if the employers start investing in the development of the skill and expertise of their workers, they in turn with their higher productivity, streamlined operations and quality products will ensure higher profit margins for their employers (Locke, Rissing, and Pal, 2012).
However there are also caveats involved in such initiatives. It is a general assumption in this model that whenever there is a technical upgradation or economic improvement of the operation process it will automatically lead to better wages and improvement in the working conditions for the lower strata of workers. This assumption has not been proved empirically as in many instances it has been seen that the benefits of the technical and infrastructural upgradation have been limited to the suppliers and manufacturing facility owners only. This concept of trickle down benefits is not applicable until and unless there are watchdogs to enforce the equal distribution of benefits. This leads us to believe that providing better working conditions and wages is more of a socio-political problem than an economic one. There is also an element of local culture and law enforcement when it comes to labour standards which cannot be ignored. Management consistency is a myth and the workers are treated differently at different places, which makes the importance of International Labour Organization all the more pertinent. There should be standardized labour laws which has to be enforced throughout the world. Here again the issue of implementing the standards is not entrusted with ILO but the local government has to take up the issue. As a result of the responsibility being distributed to several stakeholders, the possibility of implementing a fair global supply chain becomes more complex (Mah, 2007).
Similar to the competition existing between brands to optimize their costs there is a competition among the manufacturing countries to portray their capabilities to be the most suitable in order to attract the global brands. The competition is fierce among the emerging economies in Asia and it has not proven to be helpful for the labour standards or their enforcement in those countries. There is a race to bottom as far as costs are concerned which is seen as the only value proposition for manufacturing hubs. This will always force labour friendliness to take a back seat. However, even after having such obstacles and concerns improvement of infrastructure and technology at the supplier front seems to be the best bet while it comes imparting fair compensation and better working conditions for its employees. These efforts can be supported by the local government’s initiative and commitment towards enforcing labour standards proclaimed internationally as just and equitable (Maltz, 2012).
This report has highlighted the various negative aspects of global supply chain with respect to the working conditions and wage payment to the workers at the supplier’s premises of global brands. It has critically analysed the numerous elements involved in establishing such a supply chain and tried to come up with a remedial path which could ensure fair compensation and better labour standards in the developing countries. However, whether it will be actually realised or not can only be decided by the good intentions of the corporates and the local governments of the manufacturing hubs.
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Busse, M. (2004) ‘On the determinants of core labour standards: The case of developing countries’, Economics Letters, 83(2), pp. 211–217. Doi: 10.1016/j.econlet.2003.11.009.
Frölich, M. and Haile, G. (2011) ‘Labour markets in developing countries’, Labour Economics, 18, pp. S2–S6. Doi: 10.1016/j.labeco.2011.10.003.
Frölich, M. and Haile, G. (2011) ‘Labour markets in developing countries’, Labour Economics, 18, pp. S2–S6. Doi: 10.1016/j.labeco.2011.10.003.
Locke, R.M., Rissing, B.A. and Pal, T. (2012) ‘Complements or substitutes? Private codes, state regulation and the enforcement of labour standards in global supply chains’, British Journal of Industrial Relations, 51(3), pp. 519–552. Doi: 10.1111/bjir.12003.
Mah, J.S. (2007) ‘Core labour standards and export performance in developing countries’, The World Economy, 20(6), pp. 773–785. Doi: 10.1111/1467-9701.00100.
Maltz, A. (2012) ‘Global supply chains: Other voices’, Journal of Supply Chain Management, 48(3), pp. 3–6. Doi: 10.1111/j.1745-493x.2012.03269.x.
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