Barriers to code of conduct compliance within the Chinese apparel industry by Patrik Renck

Barriers to code of conduct compliance within the Chinese apparel industry a study of suppliersâ&#x20AC;&#x2122; views in China

Patrik Renck

This thesis is dedicated to the Chinese factory workers.

Copyright ÂŠ 2010 Patrik Renck Any reproduction of the materials herein, in part or in whole, without express written consent of the author is strictly prohibited.

Barriers to code of conduct compliance within the Chinese apparel industry

Acknowledgements I would like to thank a number of people whom without this thesis had never been possible to write. I wish to thank three people engaged in corporate social responsibility (CSR) activities for their support and help to get me in contact with suppliers in China. Their names have deliberately been omitted due to the sensitive topic of this thesis. I would like to thank all the respondents for their hospitality and helpfulness. I would also like to thank my research assistant Addy Fung for the help with taking the minutes at the interviews during the field study. Lastly I would like to thank my academic advisor Nazeem Seyed-Mohamed for guiding me through the process and Magnus Holmes who has read the text and given me valuable recommendations. Sincerely, Patrik Renck Uppsala, 11 January 2010

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Barriers to code of conduct compliance within the Chinese apparel industry

Acronyms and Abbreviations COC

Code of Conduct

CSR

Corporate Social Responsibility

The European Union

ILO

International Labour Organization

MNE

Multi-National Enterprise

NGO

Non-Governmental Organization

RMB

Ren Min Bi, the Chinese currency

United Nations

WTO

World Trade Organization

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Barriers to code of conduct compliance within the Chinese apparel industry

Abstract Paper type – Master’s thesis, 30 credits, Uppsala University. Purpose – The purpose of this thesis is to identify barriers to compliance with codes of conduct within the Chinese apparel industry. Methodology – The field study is based on semi-structured qualitative interviews with the management of five suppliers within the Chinese apparel industry. The study was done from a supplier’s perspective and the field study was conducted during the period from November to December 2009. All of the interviews were carried out in the Guangdong province in the southern part of China. Findings – The result of the field study shows that the main barrier to code of conduct compliance lies with that the demands from the widely used purchasing model and the demands from the factory workers are inconsistent with the demands from the CSR departments. In the apparel suppliers’ fight for survival CSR demands are ignored in order to stay competitive in a market where the ability to provide a low price and a short lead time is the only efficient way to attract orders. Value – This thesis provides a contextual understanding on how different actors in the Chinese apparel industry influence the typical supplier’s ability to comply with the codes of conduct. Key words – Apparel industry, China, corporate social responsibility, CSR, code of conduct, COC, ethics, purchasing, supply chain management.

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Barriers to code of conduct compliance within the Chinese apparel industry

Table of contents 1. INTRODUCTION .............................................................................................................................. 3 1.1 STRUCTURE OF THE THESIS ......................................................................................................... 3 2. PROBLEM DISCUSSION ............................................................................................................... 4 2.1 W HY IS A HIGH LEVEL OF CODE OF CONDUCT COMPLIANCE DESIRABLE? ................................... 4 2.2 DEFINING THE PROBLEM............................................................................................................... 5 2.3 THE AIM OF THE STUDY................................................................................................................. 5 2.4 DELIMITATION ............................................................................................................................... 5 3. METHODOLOGY ............................................................................................................................. 6 3.1 DATA COLLECTION ........................................................................................................................ 6 3.1.1 Literature review.................................................................................................................................................6 3.1.2 Choice of method for the collection of primary data...............................................................................6 3.1.2.1 Number of interviews ....................................................................................................................................6 3.1.2.2 Selection of respondents .............................................................................................................................7 3.1.2.3 Structure of the interviews...........................................................................................................................7 3.1.2.4 Validity of the research.................................................................................................................................8

4. EMPIRICAL BACKGROUND....................................................................................................... 10 4.1 INTRODUCTION TO CHINA ........................................................................................................... 10 4.2 THE CHINESE TEXTILE AND APPAREL INDUSTRY........................................................................ 10 4.3 W HY IS CORPORATE SOCIAL RESPONSIBILITY SO IMPORTANT? ................................................ 11 4.4 THE HISTORICAL DEVELOPMENT OF CSR.................................................................................. 11 4.5 THE CODE OF CONDUCT ............................................................................................................. 12 4.5.1 What does a code of conduct comprise? ................................................................................................13

5. THEORETICAL BACKGROUND ................................................................................................ 15 6. THEORETICAL CONJECTURES ............................................................................................... 17 6.1 CHINESE SOCIETY....................................................................................................................... 17 6.1.1 Chinese labour law and its level of enforcement ..................................................................................17

6.2 PURCHASING COMPANIES .......................................................................................................... 18 6.2.1 Purchasing model............................................................................................................................................18 6.2.2 CSR implementation strategy......................................................................................................................18

6.3 SUBCONTRACTORS..................................................................................................................... 18 6.4 OTHER SUPPLIERS WITHIN THE SAME INDUSTRY ....................................................................... 18 6.4.1 The competition................................................................................................................................................18

6.5 THE FACTORY WORKERS ............................................................................................................ 19 6.6 ANALYSIS MODEL ........................................................................................................................ 19 6.7 THE AUTHOR’S PERSONAL COMMENT ........................................................................................ 20

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Barriers to code of conduct compliance within the Chinese apparel industry

7. RESULTS OF THE STUDY AND ANALYSIS ........................................................................... 21 7.1 THE COC’S REPRESENTATIVENESS .......................................................................................... 21 7.2 THE RESPONDENTS’ ATTITUDES TOWARDS THE STIPULATIONS OF THE COC .......................... 21 7.2.1 Legal requirements .........................................................................................................................................22 7.2.2 Child labour........................................................................................................................................................22 7.2.3 Safety, factory conditions and housing conditions................................................................................23 7.2.4 Workers’ rights..................................................................................................................................................24 7.2.5 Monitoring and enforcement ........................................................................................................................25 7.2.6 The author’s personal comment .................................................................................................................25

7.3 THE UNDERLYING CAUSES TO THE UNSUCCESSFUL COC IMPLEMENTATION ........................... 25 7.3.1 Chinese society ................................................................................................................................................26 7.3.1.1 Analysis ...........................................................................................................................................................27 7.3.2 Purchasing companies...................................................................................................................................28 7.3.2.1 Analysis.................................................................................................................................................................31 7.3.3 Subcontractors..................................................................................................................................................31 7.3.3.1 Analysis.................................................................................................................................................................32 7.3.4 Other suppliers – the competition ..............................................................................................................33 7.3.4.1 Analysis.................................................................................................................................................................34 7.3.5 The factory workers ........................................................................................................................................34 7.3.5.1 Analysis.................................................................................................................................................................38

8. FINAL ANALYTICAL DISCUSSION ........................................................................................... 39 8.1 THE REDEFINED BARRIERS TO COC COMPLIANCE ANALYSIS MODEL ....................................... 39 8.2 FINAL THEORETICAL DISCUSSION ............................................................................................... 41 9. CONCLUSION ................................................................................................................................ 42 9.1 ANSWERS TO THE RESEARCH QUESTIONS ................................................................................. 42 9.2 PERSONAL REFLECTIONS AND SUGGESTIONS FOR FUTURE RESEARCH.................................... 43 10. THE CSR PUSH MODEL............................................................................................................ 45 Reference list Written sources Electronic sources Annexes Annex A: Interview guide Annex B: H&M’s Code of Conduct

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Barriers to code of conduct compliance within the Chinese apparel industry

1. Introduction The purpose of this chapter is to give the reader an introduction to the topic and its increasing importance.

Globalization has traditionally led to an endless search for lower production costs. Therefore production is placed in areas where the costs of labour are still low, particularly in industries where the production is labour intensive and the production cannot be fully automated. The apparel industry counts to one of those industries and the production has for many years been outsourced to low-labour-cost countries in Asia. (Sundström & Wilert, 2006) Outsourcing globally is in many cases beneficial to both the outsourcing company and the receiving country. The benefits for the outsourcing company are many. Lonsdale (2002) states that the main reasons for outsourcing are the reduction of headcount and production costs followed by the possibility for the company to focus on its core activities. Furthermore, Lonsdale argues that outsourcing enables greater flexibility and improves the lead time to the market. For the receiving country, outsourcing creates job opportunities, capital inflow and a transfer of knowledge. However, as a consequence for the outsourcing company the transparency over the supply chain is constrained and therefore also the control over the production process. This has resulted in violation of human- and labour rights. (Sundström & Wilert, 2006) As consumers, we are exposed to headlines dealing with excessive overtime, working wages that are impossible to live on and poor workings conditions (Ibid.). As a result, more and more consumers are taking ethical and philanthropic aspects into consideration when making purchasing decisions. This increases the pressure on the multi-national enterprises (MNEs) that are outsourcing production to developing countries, to regain control over the production process and engage in corporate social responsibility (CSR).

1.1 Structure of the thesis This master’s thesis began with an introduction to the topic and its increasing importance. Chapter 2 defines the problem in focus and the aim of the study. Chapter 3 presents the methods adopted and the validity of the research. In chapter 4 there follows an empirical background that provides a foundation for the study. This is followed by a theoretical background that forms a basis for the field study. The theories presented lead to several conjectures on factors affecting the level of compliance with the codes of conduct (COCs). The conjectures result in a “Barriers to COC compliance analysis model”. Thereafter the information gathered from the qualitative interviews is analysed and the “Barriers to COC compliance analysis model” is evaluated and redefined. In chapter 9 the research questions are answered and some suggestions for future research are discussed. In chapter 10 the author presents an alternative purchasing model to deal with the issues of COC compliance.

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Barriers to code of conduct compliance within the Chinese apparel industry

2. Problem discussion This chapter defines the problem in focus and the aim of the study.

The Chinese apparel industry is a billion dollar industry serving almost all the big fashion companies in the world (Taiwan textile federation, 2008). More importantly it employs millions and millions of people, mostly Chinese migrant workers (Åkerblom TA, 2009). Though many MNEs have been doing business in China for decades, fully owned supply chains are still very rare. As mentioned previously there are many reasons for that, including reduction of headcount and production costs and the possibility to maintain flexible and improve the lead time to the market. (Lonsdale, 2002) Impactt, an independent organization that helps companies with CSR issues, conducted 98 full-factory assessments between August 2007 and July 2008 according to their annual report from 2008. The report shows that the risk posed by labour standards remains very real. The assessments show that 73% of the sites they visited in China failed to pay the locally applicable minimum wage and even more were not paying the correct overtime premiums. Furthermore the legal minimum wages are unable to keep up with the costs of living in many countries in Asia, leaving the workers with little option but to work more hours to make both ends meet. The estimated average minimum wage in China was RMB 855.64, about USD 126 per month in 2008 (Impactt, 2008). Impactt found extreme working hours (over 350 hours per month) at 20% of the sites assessed. The assessment also shows that 24% of 1 the sites assessed were using child labour (Ibid.). Audit fraud, i.e. double books and 2 coached workers where also found in all regions assessed. 64% of the sites assessed in China had double books (Ibid.). Where double books are found the incidences of labour abuses are also higher. This report shows that the need for further research within this field is imperative in order to be able to cope with these issues in a more efficient way in the future.

2.1 Why is a high level of code of conduct compliance desirable? A high level of code of conduct (COC) compliance is desirable for two reasons: First and foremost because the COC has a positive impact on all the workers affected by its principles; secondly, if compliance cannot be ensured the trust from the company’s stakeholders such as customers and investors may be lost with damaging effects on the brand name as a result (Mamic, 2003). Hence MNEs have set up monitoring systems to ensure supplier compliance, so called factory audits. These audits are conducted by specialized auditors inspecting the factories both with and without forewarning in order to truly mirror under what circumstances production takes place (Mamic, 2004: Utting, 2002). Nevertheless, according to the report from Impactt (2008), full compliance is still a very rare phenomenon. The question arises: What causes some stipulations of the COC to be easily met whilst others are harder to influence? As early as 1960, Davis expressed the importance of this problem. He argues that the social responsibilities of businessmen arise from the amount of social power that they have. In his own words: “Whoever does not use his social power responsibly will lose it. In the long run those who do not use power in a manner which society considers responsible will tend to lose it because other groups eventually will step in to assume those responsibilities” (Davis, 1

A factory keeping “double books” implies that the factory owner keeps one “CSR friendly book” that he shows to the auditor during factory audits and one book for his own records. 2

”Coached workers” refers to workers that have been trained to answer questions in a “CSR friendly” way during factory audits.

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Barriers to code of conduct compliance within the Chinese apparel industry 1960:63). So if a firm does not use its social power in the “right” way, it will lose it to other groups, particularly when society demands it. In brief, MNEs have an important impact on the lives of many people working for them along the supply chain and if they do not make sure that they take responsibility for their actions some other organization or group will eventually make sure that they do.

2.2 Defining the problem The fact that MNEs are taking greater responsibilities in society is neither new, nor surprising, consequently COCs are ever increasing in popularity. As many as 95% of all Fortune 500 companies publish codes, a figure that is now rapidly approaching 100% (Grojean & Resick et al. 2004). However, only 25% of all codes refer to their implementation and as little as 52% of the corporations monitor compliance (Kaptein, 2004). To sum up, COCs are widely used but the COCs themselves cannot guarantee compliance. A code can only reveal core values, it is not a corporate compliance program in itself. Knowing this the problem seems to lie with the implementation process. Obstacles and barriers along the way from the signing of the COC document to full implementation hamper the level of compliance. The author assumes that it is only by identifying these obstacles and barriers successful CSR strategies can be developed and full COC compliance can be attained.

2.3 The aim of the study The aim of this study is to identify some of the main barriers to COC compliance from the suppliers’ point of view. This will hopefully contribute with new knowledge on the barriers to COC implementation in China. Such knowledge could with advantage be used by MNEs while drafting their strategic CSR plans. This thesis intends to answer the following questions: 1.) What are the main issues regarding COC compliance among suppliers in the Chinese apparel industry? 2.) What are the barriers that give rise to these COC compliance issues?

2.4 Delimitation This thesis does only aim to scrutinize different actors’ demands within the Chinese apparel industry, demands that are assumed to have an impact on the typical supplier’s ability to adhere to the COC. There are of course many other factors that may have an impact on the COC implementation. Things like the organizational form, the corporate culture, the company’s stage of development, personal attributes and culture all contribute to the level of COC compliance (Keinert, 2008:107). However, given the limited timeframe for this study it is out of the scope of this thesis to scrutinize them. Moreover, the stipulation about environment in the COC chosen for the field study is not scrutinized since it was found that the stipulation is not applicable to the respondents picked for this study.

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Barriers to code of conduct compliance within the Chinese apparel industry

3. Methodology This chapter will present the methods adopted and discuss the validity of the research.

As the previous chapter elaborates the author assumes that the issue with COC compliance lies with its implementation and that the level of compliance is hampered by barriers in the business environment where the supplier is carrying out its business. It is therefore interesting to address suppliers within the Chinese apparel industry to investigate their point of view regarding barriers to successful COC implementation. Allowing suppliers to speak openly and anonymously about these issues and how they feel affected by other actors in their environment may reveal facts that are otherwise not apparent in the communication with the MNEs. The information gathered will hopefully lead to a better understanding of what barriers suppliers in the Chinese apparel industry see to a successful COC implementation. Such information is of use to MNEs while drafting their strategic CSR plans.

3.1 Data collection In order to answer the research questions presented in the previous chapter the author used both secondary sources and primary data. The collection methods adopted are presented below:

3.1.1 Literature review Before the field study was carried out more than 40 academic articles from top journals and several books on the topic were studied. Business source premier and Google Scholar were the search engines used to find the academic articles. LIBRIS was the search engine used to find the books. A handful of newspaper articles and data from various websites were also used to complement the academic discussion in chapter 4. However, little earlier research about barriers to COC compliance was found. Nevertheless the objective of this study is to gather and analyse suppliersâ&#x20AC;&#x2122; views and opinions on barriers affecting their ability to comply with the COC. More space has therefore been given to empirical findings than to theoretical discussion.

3.1.2 Choice of method for the collection of primary data The ultimate objective of this study is to gather and analyse apparel suppliersâ&#x20AC;&#x2122; views regarding barriers affecting their ability to comply with the COC. Semi-structured qualitative interviews provide a suitable tool to gather such data. In a semi-structured interview the researcher has a list of open-ended questions to be covered providing the interviewee leeway in how to reply. It is also possible for the researcher to ask follow-on questions to elucidate things said by the interviewee. Further, the same main questions are asked and the same wording used at all interviews (Bryman & Bell, 2007:474). This method was chosen because it generates comparable data which makes it possible to look for causal relationships to unsuccessful COC compliance.

3.1.2.1 Number of interviews The field study was conducted during the period of November to December 2009 and included interviews with the management of five suppliers within the Chinese apparel industry. In accordance with grounded theory, data should continue to be collected until theoretical saturation is reached i.e. that the collection process has reached a point where the new data provides no further illumination to the concept (Bryman & Bell, 2007:585-86). According to Eisenhardt (1989) between four and ten interviews are recommendable for this kind of study. The author argues that five interviews were sufficient to see lucid causal relationships.

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Barriers to code of conduct compliance within the Chinese apparel industry However, an even greater number of interviews would of course have strengthened the validity of this study.

3.1.2.2 Selection of respondents In order to generate comparable data respondents with similar backgrounds were selected. All respondents represented relatively large suppliers (more than 500 employees) to ensure that the company was large enough to have some kind of middle management with specified guidelines on how business should be carried out. The author chose to only interview suppliers with the same kind of production. This was based on the assumption that it would be significantly easier to generate comparable data if the interviews were conducted with people working with the same kind of production. Furthermore, the respondents had all to be suppliers to MNEs with a COC and a monitoring program. This was to make sure that they were all familiar with the concept of CSR. Lastly, the suppliers were picked based on their location to ensure that they all had a similar perception of the local government. The interviews were conducted in the Guangdong province along the Pearl River Delta in the southern part of China, in popular parlance referred to as â&#x20AC;&#x153;the factory floor of the worldâ&#x20AC;?. Access to the field was gained through three people engaged in CSR work in China. Due to the sensitive topic of this thesis the author has deliberately omitted their names and the name of the company that they work for. Moreover, the names of the respondents and the companies that they work for have also been omitted for the same reason. Before the interviews were conducted the respondents were contacted via e-mail and informed about the objective of the study and that their participation was totally anonymous. Six suppliers were contacted in total of which five were willing to participate. The respondents had the following characteristics: Respondent

Location City/Province

No. of workers

Type of production

1 2

Shenzhen/Guangdong Dongguan/Guangdong

2000 3700

Woven Woven

Shenzhen/Guangdong

1300

Woven

Guangzhou/Guangdong

3000

Woven

Guangzhou/Guangdong

900

Woven

3.1.2.3 Structure of the interviews The interviews were conducted with people from the top management from each factory/supplier. Two factory directors and three CSR managers were interviewed in total. The interview guide used was mainly based on the conjectures presented in chapter 6 and consists of 73 questions divided into four different parts: First, general questions were asked about the factory such as how long they have been in business and how long they have been working with CSR. In this first part it was also important to make sure that the COC picked for the field study was representative for the industry, hence a question was asked whether different COCs have significant discrepancies. The second part dealt with the suppliersâ&#x20AC;&#x2122; attitudes towards the different sections of the COC. The third part addressed the conjectures presented in chapter 6. In the last stage space was given to the respondents to come with their own ideas about how a higher level of COC compliance can be reached. The interview guide in full can be found in ANNEX A

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Barriers to code of conduct compliance within the Chinese apparel industry The interviews were conducted by the author and his research assistant Addy Fung and lasted for about 4 hours each. The reason for the choice of having an assistant was based on the simple assumption that four ears and four eyes hear and see more than just two. The relatively long duration of the interviews and the fact that both the author and his assistant took notes simultaneously should have created closeness to the data gathered which hopefully gives the conclusions drawn a high degree of accuracy.

3.1.2.4 Validity of the research Validity is concerned with the integrity of the conclusions that are generated from research and is divided in internal and external validity: Internal validity refers to the issue of causality i.e. if a causal relationship between two or more variables holds water. If variable X causes a variation of Y how can we be sure that it is X and not something else that produces the apparent relationship? Are we measuring what we actually intend to measure? (Bryman & Bell, 2007:41) External validity is concerned with the question of whether the results of the research can be generalized beyond its specific context. (Ibid.) Internal validity The reader should keep in mind that: 1.) Only factories/suppliers currently working with CSR were chosen for the interviews. This was based on the assumption that it would have been significantly harder to carry out interviews with factories/suppliers not familiar with the concept at all. This might have skewed the results positively towards the benefits of CSR. 2.) Only management personnel were interviewed. This might have limited the validity since interviews with factory workers could have at least for some of the questions been more appropriate, especially regarding the questions dealing with factory workers and their attitudes. The decision to not interview any factory workers rested 3 on the discussion on “coached workers” in the previous chapter. Therefore it was assumed that the most fruitful data would come from people from the management. It was also assumed that the respondents would have been reluctant to participate if I had insisted on interviews with the factory workers. 3.) Despite clear information as to the purpose of the study, there is a risk that some respondents believed that I was working for one of the MNEs. This may have affected the respondents’ answers and attitudes positively towards CSR work. 4.) CSR work is a sensitive topic since a bad attitude towards these issues could affect the order inflow negatively. One critical issue was therefore to ensure that the respondents felt confident that they were totally anonymous. This was communicated to the respondents before the interviews were carried out. The respondents were told that the interviews were only for academic purpose and that the findings, whatever they resulted in, would never be used to their disadvantage. The respondents were also told that the interviews were opportunities to freely ventilate their opinions on barriers to COC compliance. Nevertheless, the answers from the respondents could have been skewed positively towards CSR in fear of loosing business.

”Coached workers” refers to workers that have been trained to answer questions in a “CSR friendly” way during factory audits.

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Barriers to code of conduct compliance within the Chinese apparel industry 5.) The interviews were not recorded as this could have severely affected the respondentsâ&#x20AC;&#x2122; willingness to speak openly. Instead a research assistant was used to take detailed minutes at the interviews. 6.) Three of the interviews were conducted in Mandarin and two of them in English, neither of which my mother tongue, so there is always a risk that I have misunderstood or misinterpreted the answers. External validity The reader should keep in mind that: 1.) Since the objective of this study is to examine the obstacles and barriers that Chinese suppliers see to compliance with the COC within the Chinese apparel industry, the findings cannot be generalized to apply to countries other than China. Moreover, the results can only be generalized to the textile and apparel industry and perhaps also to some other labour intensive industries with a similar CSR approach. 2.) Culture is not considered among the barriers in order to make this thesis applicable to all MNEs operating in China, irrespective of national origin. Culture is of course not to be overlooked while doing business in China but the perception of what is different differs of course with what other culture you compare with. It is beyond the scope of this study to take this into account. All of this needs to be kept in mind when reading the results of this study. Nevertheless having spent days on interviews I believe that this study can contribute with a lot of interesting findings that deserve the attention of scholars as well as practitioners engaged in CSR work in China.

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Barriers to code of conduct compliance within the Chinese apparel industry

4. Empirical background The purpose of this chapter is to give the reader an introduction to the context of the study i.e. China and its apparel industry. Furthermore the concept of CSR and its importance are elucidated. Lastly the scope of the code of conduct and its practical feasibility in Chinese society are discussed. It is important to be aware of this in order to comprehend the empirical analysis and the conclusions presented in chapter 7, 8 and 9.

4.1 Introduction to China The People’s Republic of China, hereinafter referred to as China, is the third largest country in the world in terms of area and with a population of 1.3 billion the largest in terms of population. Because of the size and diversity of the country, it is important that great care be taken when making generalizations about any aspect of Chinese society. (Dillon, 2009) China’s economy was extremely underdeveloped before Mao Zedong and the Chinese Communist Party came to power in 1949. However, it took another 30 years before the economy really took off in 1978 thanks to the open door policy launched by the respected politician Deng Xiaoping. In essence, Deng Xiaoping’s policy undid virtually all the work that Mao Zedong had done in the period from 1949 until his death in 1976. The purpose of the new policy was to open up the country to foreign trade and special economic zones with preferential taxation and financial packages opened up. As a result China moved from being a strict Soviet-style economy towards a system influenced by market capitalism with a focus on light industries and export-led growth (Dillon, 2009). Ever since, China has seen tremendous economic growth with an average annual GDP growth rate of 9.6 %. (China.org, 2006) Urbanization has been one of the most important features of China’s development since the early 70s. When worker migration began in the 1980s about 18% of the population was living in cities. By 2009 this figure had risen to about 45% (Chinanewswrap, 2009). This figure is estimated to increase by another 15 percentage points within the next decade (People’s daily, 2001), meaning that some 200 million people are expected to move into the cities. This has resulted in a surplus of work willing labour moving from rural to urban parts of the country something that has forced the average market wage considerably below the legal minimum wage in most production sectors (Sundström & Wilert, 2006). China’s status as a developing country is often ignored because of its size. Although China’s industrial sector has until recently constituted a small proportion of the economy, China is today in possession of almost all types of industrial and manufacturing capacity that are found in developed countries. (Dillion, 2009)

4.2 The Chinese textile and apparel industry The production of the millions and millions of factory workers employed within the Chinese textile and apparel industry is now standing for a substantial part of world demand. The total export value for apparel and textile products was USD 187 billion in 2008, an increase with 8% from the year before (Taiwan textile federation, 2008). More and more manufacturers throughout the world are discovering the benefits of sourcing their production in China ensuring this value continues to rise. The Chinese textile and apparel industry’s share of world textile and clothing exports was 24% and 33% respectively in 2007. China has now passed the EU as the world’s largest exporter of clothes and is also now the world’s second largest exporter of textiles (WTO, 2008). Thus a large share of the world’s consumers is wearing clothes made in China. The apparel industry is a labour-intensive industry where the production process by no means can be fully automated. Most of the workers are migrant workers from rural areas of China. This

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Barriers to code of conduct compliance within the Chinese apparel industry group has difficulties claiming its rights and consequently has been taken advantage of in Chinese society. (Åkerblom TA, 2009)

4.3 Why is corporate social responsibility so important? Multi-national enterprises (MNEs) have come to exercise considerable power over whole countries, political leaders and consumers. The power and influence of some MNEs exceed that of some national states (Keinert, 2008). Many poor countries are so dependent on export and on the job opportunities that MNEs create that they cannot afford not to listen and adhere to the MNEs’ requests. This is of course worrying from both a democratic and a humanitarian perspective. Despite the fact that many MNEs have substantial financial and social power there is still no international or supranational institution dealing with these issues. Agencies like the International Labour Organization (ILO) and the UN can only put pressure on countries, not on private individuals or companies (Keinert, 2008). This has lead to an increased activity by Non-Governmental Organizations (NGOs) with the objective of pressuring MNEs to take human and labour rights into consideration when outsourcing to developing countries (Spar & Mure, 2003). As a result of this development, CSR has emerged as a widely accepted counter-balance to corporate power. One reason why MNEs should conduct their operations in responsible manners is based on respect for local cultures, customs, traditions and religious beliefs. This is however easier said than done. Many MNEs face problems when having to choose between their own “core values” such as job equality irrespective of race or gender in countries that demand gender segregation. The perception of an average working day also differs widely from state to state which also makes it hard for the MNEs to act rationally. (Keinert, 2008) The final and probably most important argument for the implementation of CSR strategies is because it makes good business sense (Ibid.). Profit maximization may not always be the best solution for a company especially when long-term opportunities are being overlooked for the sake of short-term profits. Companies with a well-functioning CSR function are able to differentiate themselves. According to Utting (2002) a well-functioning CSR function may boost a company’s competitive advantage, create new markets and even, in some instances, lead to reduced costs.

4.4 The historical development of CSR Corporate social responsibility is not a new concept. The first book on the topic: “The Social Responsibilities of the Business man” was published as early as 1953 by Mark Bowen. (Garriga & Melé, 2004) In the 1970s the vague concept of CSR was taken one step further and split into different theories with slightly different goals, yet with a common aim; to rethink and redefine the relationship between society and business (Keinert, 2008). In brief, the first concept is Corporate Social Responsibility which sets the principles of the social responsibility. This is followed by Corporate Social Responsiveness which determines the process of reacting to social pressures. Lastly there is Corporate Social Performance, which measures the results of the process, thus showing how successful a firm is concerning its ability to fulfil its obligations towards society. (Ibid.) One of the latest concepts dealing with these issues can be referred to as Corporate Citizenship. This advocates that a corporation, in the position of a major actor within a society, has a duty to act as a “good” (corporate) citizen, thus take on its responsibilities like paying

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Barriers to code of conduct compliance within the Chinese apparel industry taxes, participating in social debates environment. (Huseted & Allan, 2000)

and

engaging

proactively

their

social

In the late 1970s and 80s corporate stakeholders were getting increasingly concerned. Awareness of environmental protection was rising along with the environmental degradation and the threatening depletion of natural resources (Pinkston and Carroll, 1996). As a result, the concept of sustainability was created to ensure stable long-term growth instead of shortterm profit maximization (Garriga & Melé, 2004). Despite increased CSR activity, a series of major corporate scandals appeared in the limelight during the 1990s. One explanation is that the awareness of these issues rose too quickly for companies to react. Consequently it seems like CSR has become a “must”, a “necessity” to stay in business. As have been elaborated earlier most corporations already display of a code of conduct, see section 2.2. Codes promising the stakeholders that they are taking “responsibility”. However, “nice words” are definitely not enough for those who truly want to take responsibility for their actions. Returning to CSR itself, one of the main criticisms that it faces is that the concept is far too vague. Since its scope is so hard to define it is consequently as hard to tell whether companies are fulfilling their social responsibilities or not. It can be questioned if complying with laws, operating at profit and engaging in some kind of charity at the same time is enough to be referred to as a social responsible corporation? (Keinert, 2008)

4.5 The code of conduct When a company takes on an ethical role, clear policies need to be formalized. Corporate codes form the basis of most companies. The smaller the firm is the easier it is to implement the principles since they are often transferred by word-of-mouth. Such word-of-mouth policies loose their efficiency as the firm grows and they have eventually to be replaced by more formal control systems. (Grojean & Resick et al. 2004) The codes are often drafted in the “west” based on western values and thereafter implemented in the east. MNEs ask their business partners along the supply chain to sign their COC and thus promise to adhere to the set principles. By doing so, the MNEs wish to gain trust of their stakeholders that their products are produced under good circumstances (Ockborn, 2006). However multiple factors hamper the ability of COCs to be fully implemented, with regional differences. Companies operating on an international scale will obviously be more successful if they adapt their codes and the ways they are implemented to local environments. (Keinert, 2008)

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Barriers to code of conduct compliance within the Chinese apparel industry 4.5.1 What does a code of conduct comprise? There are almost as many different codes as there are companies using them. Thus far, there is no “code” out there telling MNEs which code to use. The code’s objective is to clarify the company’s norms and values (Kaptein, 2004). However, most codes used in the Chinese apparel industry incorporate the ILO’s core labour standards. Core labour standards are those standards incorporated into the ILO Declaration on Fundamental Principles and Rights at Work adopted in 1998. They are derived from the following ILO conventions: (Jenkins & Pearson et al. 2002) • • • • • •

Freedom of association (c87) Right to collective bargaining (c98) No forced labour (c29. c105) Minimum age (c138) No discrimination (c111) Equal remuneration (c100)

In terms of wages and working times, firms need only to pay the legal minimum and not exceed the legal limits on hours worked. Even the provision for one day off every seven day period can be waived in order to meet urgent business needs. Overtime must be voluntary and paid at the legal premium rate, or where such a rate does not exist, at 1.5 times the normal hourly rate. Moreover, it is stipulated that workers should not work more than 48 hours a week plus 12 hours overtime, or the maximum legally permitted, whichever is lower. (Ibid.) According to Chinese labour legislation, a maximum of 36 overtime hours per month is 4 allowed, meaning that the maximum working week can be 53 hours , 7 hours shorter than stipulated in the core labour standards. It is a general perception among the MNEs that national law should be obeyed, however, the Chinese labour law and the ILO core labour standards contradict on several important issues. Of these, the freedom of association and collective bargaining are the most important, neither of which are allowed by Chinese labour legislation. In fact, China has only ratified three out of the eight so-called core labour standards, comprising the ones mentioned above. Moreover the right to strike is not protected by law. (Sundström & Wilert, 2006) A brief look at the code of conduct of Sweden’s largest fashion company provides an overview of what a code of conduct can comprise (H&M Code of Conduct, 2009). H&M’s COC is divided in eight sections, which are summarized below. 1. Legal requirements: In brief, the suppliers must in all their activities follow the national laws in the countries where they operate. This section also states that if any of the requirements incorporated in the code would be in violation of the national law, the law should be followed. 2. Child labour: Children should under no circumstances be engaged in the production with an exception for apprenticeship programmes. 3. Safety: This section deals with factory safety. Aspects such as clearly marked emergency exits, fire extinguishers and first aid equipment are all covered in this section.

The Chinese Labour Act dated 5 July 1994 stipulates an average working week of 44 hours and a maximum monthly overtime of 36 hours, regulated in chapter IV section 36 and 41 respectively.

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Barriers to code of conduct compliance within the Chinese apparel industry 4. Workers’ rights: This section states that bonded workers, prisoners and illegal workers are not permitted in production. Furthermore it states that corporal punishment is not accepted under any circumstances. The section also stipulates the right for the workers to join associations and to bargain collectively. However, this is not applicable in China since it is in violation of the law, see “legal requirements” above. Section 4.2 of the COC covers wages and working hours, stating that wages should be paid regularly and on time. Furthermore it stipulates that working hours must not exceed the legal limit of 53 hours per week. Moreover issues such as annual and maternity leave are addressed. 5. Factory conditions: In brief, the factory environment should be clean and free from pollution. The temperature in the factory should be tolerable as a working environment. The lightning should also be sufficient. 6. Housing conditions: In brief, the same as for factory conditions. In addition all the workers must be provided their own individual bed, and the living space per worker must meet the minimum legal requirement. Furthermore there should be no restrictions for the workers to leave their dormitories during off hours. 7. Environment: This section deals with the protection of the environment and stipulates that environmental laws and regulations in the country of operation must be observed. Furthermore the suppliers must sign a chemical restriction commitment, confirming that no prohibited chemical substances are used in the production. This section will not be scrutinized since it is not applicable to the respondents chosen for the study. 8. Monitoring and enforcement: This last section stipulates that the supplier must inform the purchasing company of where the order in question is produced. And that the purchasing company has the right to make unannounced visits to make sure that the production process is in line with the stipulations incorporated in the code. Furthermore it stipulates that the purchasing company has the right to terminate the business relationship if any of the stipulations above are violated. H&M’s code of conduct in full can be found in ANNEX B It is important to have an understanding for what a code of conduct can comprise in order to be able to address compliance issues. The code described above provides us with an idea of what issues that are addressed in the apparel industry. This code’s representativeness and practical feasibility in the Chinese apparel industry will be assessed and discussed in the empirical parts of this thesis.

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Barriers to code of conduct compliance within the Chinese apparel industry

5. Theoretical background This chapter aims to familiarize the reader with the two theories selected for the aim of this study. The theories presented lead to a few conjectures discussed in the following chapter. The conjectures result in a “Barriers to COC compliance analysis model”, a model that will be assessed and evaluated in the empirical parts of this thesis.

Knowing that most corporate managers have a COC (see section 2.2) the problem seems to lie with the implementation strategy and its practical feasibility. The author assumes that the supplier’s ability to adhere to the COC is constrained by the behaviour of other actors in its business environment. Pfeffer and Salancik (2003) argue that in order to understand the behaviour of an organization you have to understand the context of that behaviour. They have introduced the interdependence theory saying that organizational behaviour or decision making is constrained by other actors’ demands in the same environment. The problem lies with that the different demands are inconsistent. Thus organizations are faced with conflicting demands and have no choice but to decide which interest group to listen to and which to ignore. However, each time they decide to satisfy the demands of one interest group they simultaneously constrain their own ability to meet other demands. Some demands are more important than others in a supplier’s context and the fight for survival is what is making an organization ignore demands, they argue (Ibid.). This concept of interdependence is useful in order to understand how organizational decision making regarding COC compliance is constrained by the environment. Keinert (2008:107) another scholar argues that there are many factors that hamper the COC implementation process. Furthermore, she argues that the factors can be internal as well as external and divides them into three different levels: The first level deals with the organizational form, corporate culture and the company’s stage of development followed by resource availability and the individuals’ willingness to consider CSR. The second level refers to personal attributes of individuals and their willingness to make a difference. The third level deals with the external environment, determined, inter alia, by the industry in a local context, government interventions and regulative initiatives. (Ibid.) This thesis and this chapter in particular will focus on the third level elaborated above. Keinert (2008:131) presents three major environmental factors that affect the level of COC compliance; industry attributes, competitive environment and governmental regulations and incentives. Industry attributes: While companies in some industries have semi-mandatory COCs, companies in other industries are working under such fierce competition and aggressiveness that there is little or no room for CSR (Neubaum et al. 2004:345). One crucial factor is the complexity of the industry. The higher the complexity the higher also is the tendency to rely on well-established structures and formal policies (Grojean et al. 2004:229). Furthermore, differentiation of the industry does also have an impact on the willingness to work with CSR. Firms operating in industries that are highly differentiated are more likely to engage in CSR activities in order to attract customers than firms operating in less differentiated industries. (Elsayed, 2006:302) Competitive environment: The competitive environment is closely connected to the industry attributes, but it is much broader. This factor also takes cultural factors and values into account. In competitive environments with high uncertainty and dynamism, companies may on the one hand feel the need to exploit CSR in order to ensure protection and support from stakeholders. But the high uncertainty may, on the other hand, put the firm under so much pressure that it finds itself unable to fulfil any interests other than its own. (Keinert, 2008:133)

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Barriers to code of conduct compliance within the Chinese apparel industry Governmental Regulations and Incentives: Governments can at any time use their power to enforce or encourage CSR activities. They can either do so by imposing negative incentives, such as penalties for unlawful behaviour. However, such sharp legislation with regard to CSR has only been developed in the most industrialized countries (Keinert, 2008:134). Another way of encouraging and stimulating CSR activities is by making it advantageous for corporations to do so. One powerful incentive for efficient self-regulation is to ease the inspection of firms that voluntarily comply with environmental guidelines above the legal minimum requirements (Ruhnka and Boerstler, 1998:315). Public bids also have a significant positive impact on CSR work. By laying down strict rules regarding the CSR activities necessary to qualify for a public contract, governments create positive incentives that can form a highly effective instrument for achieving a desired level of corporate conduct. Hence governments possess a powerful instrument to influence industrial behaviour. (Ibid.) The two theories presented above are supplemented in the next chapter with a few conjectures and an analysis model. The analysis model illustrates assumed factors that hamper the COC implementation process in the context of the Chinese apparel industry.

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Barriers to code of conduct compliance within the Chinese apparel industry

6. Theoretical conjectures The purpose of this chapter is to present several conjectures based on the two theories presented in the previous chapter. The conjectures result in a “Barriers to COC compliance analysis model”, a model that will lay ground for the empirical study of this thesis.

Based on the theories by Pfeffer and Salancik (2003) and Keinert (2008), the author assumes that a supplier’s ability to adhere to the COC is constrained by the behaviours of five different actors within its environment. The five actors are put together in a “Barriers to COC compliance analysis model”, a model illustrating how they are all hampering the level of COC compliance. The actors are presented and discussed further below: • • • • •

Chinese society Purchasing companies Subcontractors Other suppliers within the same industry The factory workers

6.1 Chinese society The Chinese government in its position of being the primary national policy-making organ in Chinese society influences the possible level of COC compliance in two ways; firstly through the legislation it chooses to impose and secondly through the level of enforcement.

6.1.1 Chinese labour law and its level of enforcement It is a general perception among MNEs that national law should be obeyed. However, as been elucidated earlier (see section 4.5.1), Chinese labour law and the ILO core labour standards contradict on several important issues. According to Chinese labour law the freedom of association and collective bargaining as well as the right to strike are not protected (Sundström & Wilert 2006). Furthermore, Chinese labour law is largely not enforced. Experts on Chinese labour law argue that the reason is that officials worry that enforcement would increase costs and thereby deter investment and consequently undermine local economic development (Wonacott, 2003). Sundström & Wilert (2006) argue further that officials ignore enforcement in order to reduce unemployment, or at least keep it from rising. It was noticed as late as in August 2009 (DI, 2009) that the Chinese government is truly concerned about the escalating unemployment rate especially since more and more people are moving into the cities (see section 4.1). The assumed barrier to successful COC compliance lies with the drafting of Chinese legislation and its level of enforcement. The author assumes that the “non-action” taken by the Chinese government creates a business 5 environment where the invisible hand is left to decide under what circumstances production takes place.

”The invisible hand” refers to a metaphor introduced by Adam Smith. With the invisible hand Smith was trying to describe how resources are allocated in society. He claimed that; self-interest, competition and supply and demand are the forces capable of allocating resources in society.

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Barriers to code of conduct compliance within the Chinese apparel industry

6.2 Purchasing companies The author assumes that the purchasing companies influence their suppliers in two ways; firstly through their purchasing models, i.e. the way they are doing business, secondly through their CSR implementation strategies. It has been discussed at length that the demands from these two functions are rather contradictory. See for example Mamic (2004). MNEs such as Nike and GAP often only contract for a small percentage of a factory’s output (Neef, 2004). Therefore it is obvious that suppliers do business with many MNEs simultaneously. The author assumes that it is important to scrutinize the most widely adopted purchasing model and CSR implementation strategy in the industry in order to truly mirror what the suppliers are facing while considering CSR demands.

6.2.1 Purchasing model A widely adopted purchasing model among MNEs trading apparel with China is a model that puts the suppliers in competition with each other and asks for the best price through price quotations. Production orders are often given at a very short notice, mostly because global buyers work on a flexible ordering basis in order to meet changing consumer demand (Jenkins & Pearson et al., 2002). In order to maintain flexibility the suppliers are kept at arm’s length and orders are given to multiple suppliers in order to ensure delivery.

6.2.2 CSR implementation strategy MNEs use monitoring systems to ensure compliance with their COCs. Factory audits are conducted both with and without forewarning in order to truly mirror under what circumstances production takes place. CSR work has for a long time been associated with high costs and it has been very much discussed who is to bear the costs for the improvements regarding the production process and the working environment (Mamic, 2004). The scope of the task itself has also been discussed. Utting (2002) stresses the difficulty of the monitoring task. Many MNEs have more than 1000 suppliers. To monitor most or all of them is clearly impossible, he argues.

6.3 Subcontractors Since a chain is no stronger than its weakest link it is important to consider the supplier’s subcontractors when assessing the performance of a supplier. A supplier’s way of doing business is highly interrelated with how its subcontractors do business. The assumed barrier here lies with whether the subcontractors have the ability to create a foundation for the first tier suppliers to act in a “CSR friendly” way.

6.4 Other suppliers within the same industry Based on the fact that all suppliers within the Chinese apparel industry are competitors and thereby also fight for the same orders it is assumed that the level of COC compliance is related to how other suppliers within the industry are doing business, below referred to as the competition.

6.4.1 The competition In a supplier’s perspective the competitive pressure is immense. In order to win orders, the suppliers get into a competitive bidding process, often via the Internet, with the perception that contracts will be awarded based on how inexpensively they can produce and how fast

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Barriers to code of conduct compliance within the Chinese apparel industry they can deliver (Mamic, 2004). The suppliers are therefore under pressure to continuously reduce costs in fear of losing orders to other suppliers within the industry. (Jenkins & Pearson et al. 2002)

6.5 The factory workers A supplier may have several thousand employees, most of them are migrant workers from rural areas of China, people that are willing to accept the lowest pay and yet are able to produce quality products. Most workers only work in the factories for a couple of years and thereafter they return to the countryside (Sundström & Wilert, 2006). The presumed barrier lies with the gap between the stipulations incorporated into the COC that has been drafted in the “west” and the workers’ values and attitudes in the east.

6.6 Analysis model The theories presented in the previous chapter by Pfeffer & Salancik (2003) and Keinert (2008) together with the actors discussed above have been put together in a “Barriers to COC compliance analysis model”. This model illustrates how different actors through their demands in the supplier’s business environment hamper the level of COC compliance.

The grey background illustrates Chinese society and the “non-action” taken by the Chinese government. In this environment the issue of COC compliance can be described as a tug-ofwar. The CSR departments are standing on the right side pulling the rope in order to improve COC compliance. On the other side other actors with inconsistent demands are pulling the rope in the opposite direction in order to fulfil their own needs. The model illustrates how other actors within the Chinese apparel industry hamper the level of COC compliance through their inconsistent supplier demands.

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Barriers to code of conduct compliance within the Chinese apparel industry

6.7 The authorâ&#x20AC;&#x2122;s personal comment This chapter elucidates the most prominent actors within the supplier-buyer business environment and some of the difficulties that are assumed to be associated with a successful COC implementation. However, the reader should keep in mind that what have been discussed in this chapter are only conjectures with inadequate empirical support. The actors presented in the analysis model in section 6.6 and their true impacts on COC compliance are going to be analysed and discussed in the next chapter. In chapter 8 the analysis model will be evaluated and redefined.

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Barriers to code of conduct compliance within the Chinese apparel industry

7. Results of the study and analysis This chapter presents the results of the study and is divided in three sections. The first section deals with the chosen COC’s representativeness in the industry. The second section deals with the respondents’ attitudes towards the different stipulations of the COC. The aim of this section is to determine which stipulations of the COC the respondents find hard to implement. In the last section the “Barriers to COC compliance analysis model” is scrutinized and the actors’ true impacts on COC compliance are determined. In the following chapter the “Barriers to COC compliance analysis model” is evaluated and redefined.

This chapter is based on the answers gathered during the field study. The transcripts from the five interviews resulted in 25 pages of quotations. The interview guide can be found in annex A. The quotations are analysed and in this chapter the respondents’ general perceptions are presented. Interesting discrepancies are also enclosed to the academic discussion. Some empirical data that can be found in the interview guide in annex A have not been enclosed. However, it is the view of the author that nothing has been left out that could have affected the outcome of this study.

7.1 The COC’s representativeness To ensure the validity of this thesis it is important to make sure that the COC chosen for the study is representative. Therefore the respondents were asked whether different COCs have significant discrepancies. Fortunately, it was found that the COC chosen for this study is representative. Major discrepancies were only found among the MNEs’ attitudes towards COC implementation. This can be illustrated by the following quotations; “All our international clients have a COC. The COCs look all the same to me, just basic legal requirements. The stipulation about child labour is always the same. Well some more detailed parts can R2 have small differences.” “The COCs don’t differ much but the attitudes towards the stipulations differ widely. The Americans only care about the paper work. They come once and then we really show off and everything looks perfect. The Europeans really try to improve the standards. They tell me that they will show up in the middle of R4 the night and they really do. They have been doing it for the last two years.” “The COCs don’t differ much in general but the monitoring programs do. Some of our clients use a third party for monitoring, some of our clients have their own auditing personnel. Most of our clients come to R5 our factory once a year.”

However, it was found that some MNEs work with the so called BSCI standard a standard that is somewhat less strict regarding overtime; “Many of our clients work with the BSCI standard. The BSCI standard allows a 60-hour-working-week but this COC does only allow us to have a 53-hour-working-week in accordance with the Chinese labour R5 law.”

With this in mind the aim of the following section is to elucidate the respondents’ attitudes towards the different stipulations of the COC presented in section 4.5.1.

7.2 The respondents’ attitudes towards the stipulations of the COC In this section the respondents’ attitudes towards the stipulations of the COC are presented and discussed. The COC chosen for this study is divided into eight different sections each of which deals with the suppliers’ corporate conduct. A summary of the COC can be found in section 4.5.1. The COC in full can be found in annex B.

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Barriers to code of conduct compliance within the Chinese apparel industry 7.2.1 Legal requirements The first stipulation of the COC deals with legal requirements and states that the suppliers must follow the national laws in the country where they operate i.e. China. The respondents’ attitudes towards the Chinese legal system are to say the least negative. Most of the respondents see the Chinese labour law as an obstacle to business. All the respondents expressed that they have difficulties to adhere to the national laws; “The Chinese labour law is just a burden to us... it was much better before. It is because of this new law R1 so many factories have closed down.” “China has so many rules but for us in the industry it is hard to fulfil them all.”

One of the respondents accentuated that the main reason why it is so hard to fulfil the COC is because the Chinese labour law is so extensive and strict; “I think the biggest problem with the COC lies with the Chinese labour law. I don’t know what the laws look like in Vietnam and Bangladesh, but if they are not as strict the COC is probably very easy to R5 meet.”

7.2.2 Child labour The second stipulation of the COC deals with child labour and is the most important one to many MNEs. This is something that all the respondents are aware of. All the respondents are strongly against child labour but at the same time they also state that this is not a big problem in China. The quotations below illustrate this line of reasoning; “Child labour is not acceptable. However, I don’t think that child labour is a big problem in China. China is richer than many other Asian countries and on top of that we have the one child policy. I don’t think R1 any parent would want their child to work when he is under-age.” “Child labour is not acceptable. Children should be taken care of and go to school, not work.”

However, one of the respondents expressed that child labour is a problem in China. Many companies are run by families and children are sometimes exploited for the sake of the family; “We are against child labour, I am personally strongly against it. I have started my own print factory, the print factory I used before had child labour and that is why I started one myself. One problem is that many of these companies are run by families and sometimes they use their own children. If someone is R4 having his six year old son helping him out in the factory I can’t yell at him, I better do it myself.”

One of the respondents expressed that indolence is the major reason why he does not recruit under-aged workers; “I don’t like child labour. They work slowly and they just want to play. They don’t have any energy to work. We would accept people at 16 years of age but we rather hire people that are 30+. Most of them R5 have a family to take care of so they work harder.”

Four out of five respondents said that they don’t have any problems with under-aged workers. This is illustrated by the quotations below; “It is not hard for us to check the age of new workers, we always check their ID cards. I know that their ID cards may be fake but now we pay all our workers through their banks. The banks are able to check R1 if the ID card really belongs to the worker or not.”

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Barriers to code of conduct compliance within the Chinese apparel industry “Child labour is not a big problem for us, we always check our new workers’ ID cards. We also only hire people with a couple of years of experience. In 1998 when we started to work with CSR we put a lot of R2 effort into this.” “We always check the ID card. First our security guard checks it and then we do, if we are in doubt we R3 don’t hire the person in question.”

However, fake ID cards still seem to be in circulation and one of the respondents addressed the issue with the one child policy. He argues that the one child policy has created a market for fake ID cards especially in the apparel industry since it is dominated by female workers; “One problem in China is the one child policy. Parents may have one official son with an ID card and six daughters with no identification. It happens that females borrow ID cards from friends. It is too bad that R4 this industry is dominated by female workers.”

7.2.3 Safety, factory conditions and housing conditions Below stipulation 3 (safety), 5 (factory conditions) and 6 (housing conditions) of the COC are discussed jointly since the respondents’ attitudes towards them are about the same. In this section the following points are addressed; clearly marked emergency exits, fire extinguishers and first aid equipment. Furthermore the factory should be clean and free from pollution. The temperature in the factory should be tolerable as a working environment. The accommodation provided to the workers should follow the international minimum standards. Moreover, there should not be any restrictions for the workers to leave their dormitories during off hours. No one of the respondents finds it hard to implement these stipulations, mostly because the requirements are set so low; “It is not hard for us to keep the factory in the condition the MNEs demand, the requirements are just R1 basic.” “To keep the factory in a good condition is not a problem for us.”

One of the respondents said that it is harder to keep up with the competition than to meet the requirements from the MNEs; “We have about 1000 workers living in dormitories. The MNEs require the international minimum standards. We meet that but it is still not a place you would like to live in. For us it is harder to keep up with the competition. In comparison to our competitors our dormitories are in a really bad condition. Our R4 competitors provide air conditioning for instance, we don’t.”

All the respondents said that the requirements are easy to understand and relatively easy to meet. They pointed out that the hardest part is the management of the workers; “I think it is easy for us in the management but it is different for the workers. The workers do not know R1 what the best is for them. We provide education and the workers listen but they don’t really care.” “The requirements are easy to understand, like you must not block an emergency exit, but when you have 3000 workers it is all of sudden pretty hard. I am running around like crazy to make the workers R4 understand what they must not do.”

Four out of five respondents deem that the costs related to these stipulations are just minor and that they are not affecting the production price. However, some of the respondents would still like to get some monetary compensation for this and help with the management in order to be able to meet the COC even better;

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Barriers to code of conduct compliance within the Chinese apparel industry “We would appreciate help with this, but only if the MNEs could send someone who truly understands R1 the workers and can talk to them.” “If I could get some compensation I would of course be able to do it even better.” “We would like to get some compensation for this but we don’t dare to ask.”

7.2.4 Workers’ rights This section deals with the workers’ rights. In short, the workers must never be required to remain employed for any period of time against their own will. No forced labour is allowed in production. The working hours must not exceed the legal limit and overtime must be voluntary. Wages must be paid regularly, on time and to the right amount. All the respondents find it hard to adhere to this stipulation. All the respondents reported extensive overtime. One of the respondents reported 150 overtime hours per month which is 114 hours more than the legal maximum overtime. Many of the respondents find it hard to plan production and therefore also hard to pay the workers on time and to the right amount. This is illustrated by the quotations below; “The stipulation dealing with payment and working hours is really hard to meet. R1 stipulations are very easy, we never have any violations on them.”

The rest of the

“Child labour and safety is not a problem for us. The problem lies with the working hours. The payment R2 for overtime hours is making it hard for us. It is hard for us to plan the overtime when it is like this.” “Nowadays we have to work more hours to be able to deliver on time. Before most of our clients were looking for a 30 days lead time, now more and more clients are requesting a 25 days lead time. We try R1 to meet that by improving our productivity but also with more overtime.” “The only problems we have are the problems with overtime hours and salary payments. It is impossible R3 to fully meet the Chinese labour law stipulations.” “Overtime is the hardest part, overtime and the overtime payments.”

“Safety and environmental standards are easy to meet. The most difficult stipulation is the stipulation R5 dealing with working hours since it is based on the Chinese labour law.”

Three of the respondents expressed that they have difficulties to compensate their workers on time and to the right amount. One of the respondents claims that overtime compensation is very rare in practice; “The price is so low right now. We can’t bear the burden of paying extra for the overtime hours. Our clients do only care about the price. If we would pay our workers according to the Chinese law it would R1 be hard to do business.” “This is so hard. If I decrease the pay to my workers they will walk to the next door and if I don’t the R4 buyers will go to Bangladesh.” “Before we paid our workers through their bank but they prefer cash. The workers don’t understand how R5 to you use a bankcard. One of our workers put his bankcard and PIN together in his wallet and lost it.” “It is impossible for us to have a fixed date for salary payments. We have 900 workers and since we pay all the workers in cash we have to withdraw an enormous amount from the bank. It would never work.”

“I don’t think many factories practice 1.5 and 2 for overtime hours.”

One of the respondents tries to deal with this issue by making sure that they are financially sound;

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Barriers to code of conduct compliance within the Chinese apparel industry “We keep a lot of cash in this company. We don’t invest in the stock market or in property. My brother R4 has invested a quarter of his life into this company to build a good reputation.”

7.2.5 Monitoring and enforcement This section deals with the respondents’ attitudes towards the monitoring programs used by the MNEs. All the respondents are happy with the monitoring programs. However, they accentuated that CSR is a long term thing and that the problem with overtime, overtime compensation and on time payments still persist; “The monitoring program that our biggest client uses really helps us to fulfil the COC.”

“We are very happy with the monitoring program our biggest client has got. Our other clients only come here to audit but this client sets up goals and helps us to set up a system to deal with them. It is really R3 effective.” “I think that the monitoring program that our biggest client uses really helps. We have improved a lot on R5 many things. I think they help us to take one step at a time. “You can have the best CSR company in the world but you would not sell, and then everyone is out of R4 business…CSR is a very long term thing.”

7.2.6 The author’s personal comment This section elucidated the respondents’ attitudes towards the stipulations of the COC. Many of the stipulations do not seem to be a problem, at least not from the respondents’ point of view. The respondents are against child labour and do everything they can to prevent it. The stipulations dealing with safety, factory- and housing conditions are also easily met they contend. However, the stipulation dealing with working hours, overtime compensation and on time payments is still far from fulfilled. Knowing this the objective of the following section is to analyse the underlying causes to the unsuccessful COC implementation. In the following section the “Barriers to COC compliance analysis model” is analysed and the different actors’ true impacts on COC compliance are discussed. In chapter 8 the analysis model will be evaluated and redefined.

7.3 The underlying causes to the unsuccessful COC implementation The different actors presented in the “Barriers to COC compliance analysis model” in section 6.6 were assumed to have equal influence on the supplier’s level of COC compliance. This rested on the fact that their influences were based on theoretical conjectures with inadequate empirical support. The actors in the model and their true impacts on the level of COC compliance are going to be discussed in this section.

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Barriers to code of conduct compliance within the Chinese apparel industry

The actors are discussed in the following order: First Chinese society is discussed since Chinese society is the setting where the COC is to be implemented and where the business takes place. This is followed by a discussion on how the purchasing companies affect the level of COC compliance through their purchasing models and CSR implementation strategies. There follows a discussion whether the suppliers’ subcontractors are able to create a foundation for the first tier suppliers to act in a “CSR friendly” way. Thereafter the competition from other first tier suppliers is discussed and how it influences the supplier’s ability to consider CSR. Lastly, the factory workers’ attitudes towards CSR are discussed to see if they are congruent with the stipulations of the COC.

7.3.1 Chinese society The Chinese government influences the level of COC compliance in two ways; firstly through the legislation it chooses to impose and secondly through the level of enforcement. The respondents pointed out that the Chinese labour law is extensive but also to a large extent not enforced. One of the respondents said that the reason for this is that enforcement would undermine economic growth, something that corresponds with the thoughts of Wonacott (2003) and Sundström & Wilert (2006) presented in section 6.1.1; “The Chinese government is pretty strict regarding criminal law but it doesn’t care so much about civil R2 law violations.” “The labour law was wrong from the very beginning and now they can’t change it. The problem lies with R3 that no one is following it.” “If the government really would implement the law the buyers would go to Bangladesh and then R4 everybody will loose. I think that the government knows this.” “The government doesn’t implement the law. All the requirements that we fulfil come from our clients.”

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Barriers to code of conduct compliance within the Chinese apparel industry It seems like the lax enforcement of national laws has created a business environment where “no one” is following the law to the letter. The respondents were asked whether they think their competitors follow the law while doing business; “No, I don’t think so, they are facing what we are facing. It is because of the law so many factories have R1 closed down.” “I think the only reason for our competitors to follow the law is to maintain goodwill. Some big companies in Hong Kong really focus on this to maintain a good reputation. They have their shareholders to think about. I think they are good at following the law but at the same time they R2 outsource and blame the suppliers.” “I have not seen a single factory that doesn’t have longer overtime than 36 hours per month. I don’t R3 think anyone can do it.” “I think that we all work in the same way in this industry. There are probably some companies that totally follow the law but they are not many. The Chinese labour law is not reasonable… everyone R5 would go bankrupt and there would be no food to eat.”

One of the respondents pointed out that the government does everything it can to maintain a stable and speedy economic growth. This can be illustrated by the following quotation; “The Chinese government actually does a lot to make us survive. Especially last year when the RMB R4 rose so rapidly it increased the tax-repay. It was incredible it saved me and my company.”

However, it seems like the labour law has become somewhat stricter recently and that the level of enforcement also is getting more rigorous; “The new law on employment contracts imposed in 2008 affects us quite a lot. Now the workers on sick leave have right to compensation…many of our workers come to us with fake papers saying that they R3 are sick.” “The new law on employment contracts gives the workers a lot of new rights, so it is not as easy to have R3 control over the workers as before.”

The general perception among the respondents is that the labour law is not suitable for the apparel industry and that this is why “no one” is following it. The quotations below illustrate this line of reasoning; “The stipulation on overtime was wrong from the beginning, it is impossible for anyone running a factory R3 to follow it.” “The western world says that a five-day-working-week is good so we have to adopt it.”

“This law says that we people should be treated in the same way but people have different value. You can’t compare a doctor with a factory worker. If a doctor works for one hour and a factory worker works R5 for one hour, do you think that the value is the same?” “The labour law was wrong from the first day it was imposed. It may work for banks and IT corporations R5 but not for us in this industry.”

7.3.1.1 Analysis It seems like the Chinese government has created a business environment where civil laws are to a large extent ignored and market forces are left to decide under what circumstances production takes place.

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Barriers to code of conduct compliance within the Chinese apparel industry 7.3.2 Purchasing companies The purchasing companies affect the level of COC compliance in many ways, mostly through their purchasing models and CSR implementation strategies. The respondents pointed out that they started to work with CSR because it was a requirement to get orders. This is illustrated by the quotations below; “We started to work with CSR in 1998 because our American clients wanted us to.”

“CSR was a customer requirement, our biggest client wanted us to work with it so we started.”

Some of the respondents maintain that it would be easier to work with domestic clients since they do not care about CSR. The reasons for not doing so are because they want to learn from the western world and because it is much harder to get business running smoothly with domestic clients; “It would be a lot easier to work with only domestic clients but we make more money on the products that we sell overseas. It is important for us to have a lot of international clients to learn about the new R2 styles from the west.” “Our international clients pay us 5-10% more than our local clients.” “The demand is so big from overseas.”

“There are several reasons why we only work with international clients; you get a sizeable order, they R4 pay on time and you can trust them.”

Two of the respondents pointed out that the domestic clients are harder to trust and also to a greater extent corrupt; “We have always been working with international clients. We prefer to do business with them. Their requirements are often more strict but their orders are on the other hand big. To do business with domestic clients can sometimes be tricky. Most domestic clients have a relationship with the local R5 government and we don’t want that. There is always a risk in China that you will get deceived.” “I don’t work with domestic clients because they don’t pay. I don’t understand how any of my friends R4 bear to work with them.” “The domestic clients demand that you finance their business and if you have to finance them how are R4 you going to be able to pay your workers.”

Some of the respondents work with several clients in order to risk diversify and maintain a stable order inflow. Some of the respondents have only one major client. However, the respondents made clear that the choice of just having one client was not a strategic one. The respondents argue that the market has put them in the hands of the financially strong MNEs. One of the respondents pointed out that his work with CSR has resulted in such a significant cost increase that it is hard for him to sell his products to anyone but his major client; “Our biggest client has got 70% of our factory output. We don’t have any bargaining power anymore. If they would stop placing orders with us we would have nowhere to go. All the MNEs work like this. First they give you a few small orders, and then as the relationship becomes better they give you more and more. In the end it is not only about the products we produce, they want a tailor made package. Now we don’t have a choice but to totally adjust to the demands from our biggest client. If they would stop R3 placing orders with us we would have to close down that is for sure.”

Even though some of the respondents have close relationships with their clients they pointed out that they cannot rely on them since the order inflow fluctuates significantly. The respondents accentuated that they always must be ready to meet the competition on the market when the order inflow drops;

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Barriers to code of conduct compliance within the Chinese apparel industry “I would not want to work with only one client. I have a bad experience with an American client. They had 70% of our output but all of sudden they stopped placing new orders because of internal problems. It affected us tremendously. Now we don’t focus on one or two clients anymore, we rather have more R1 clients to make sure that we get the orders.” “I can’t rely one client the risk would be too high. What if they all of sudden stop placing orders with us? R2 We have to risk diversify to make sure that we stay in business.” “Our biggest client has got about 80% of our output. We have been doing business with this client for 25 years. This client literally came up to my cousin 25 years ago and asked him if he could put up a factory. R4 Back then they had 100% of our output but I am trying to reverse the trend.”

The majority of the MNEs that the respondents do business with have a COC and a monitoring program. The COCs look about the same to the respondents but the MNEs’ attitudes towards the level of implementation seem to differ widely. Only a small percentage of the MNEs seem to really care about the level of implementation. This is illustrated by the quotations below; “About 80% of our international clients have monitoring programs. Even our small clients have got one R2 but our small clients only come and audit us once and then they are happy.” “Only the clients with offices in China care about monitoring, 50% of our clients use a third party for R2 auditing.” “They all say that they have a COC but only a few really do something.”

“The Americans only want us to say that we meet it, but they really don’t care.”

“One of our clients comes once every three years and then we show off and then they are gone for R4 another three years.”

The author’s perception is that COCs and monitoring programs are common but that only a few clients really care about the level of COC compliance. In short COC demands are overlooked to the advantage of a low price and a short lead time; “In general, price and quality are more important to our clients but some clients think that CSR is R1 important too.” “Price is what is most important to our clients, after price the lead time is the most important. Then R2 maybe CSR and product quality.” “Price is very important to our clients but it is not only about price, the lead time is also very important. I R4 think that most clients don’t consider CSR as something important.”

It seems like the respondents only see CSR as a threshold to do business and that it is enough to pass the basic requirements to attract orders; “CSR is just like a threshold, either you meet the demands or you are not in the game.”

“CSR is important to us. We have to pass the requirements and then they start placing orders.”

Some of the respondents pointed out that it is hard to stay competitive in the market when considering CSR demands. Price and lead time is still more important to the majority of the clients, they said; “We are under a lot of pressure. On the one hand we have to keep our prices competitive to get orders, R1 on the other hand we have to pay our workers properly.” “The COC is making it hard for us. The COC increases our costs and lower our profit. The prices that R2 we get from our clients are about the same no matter if we follow the COC or not.” “You can have the best CSR company in the world but you would not sell, and then everyone is out of R4 business…CSR is a very long term thing.”

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Barriers to code of conduct compliance within the Chinese apparel industry All the respondents maintain that CSR work is increasing their production costs and that this infringes their ability to stay competitive; “CSR affects our production price with 15% at least. Overtime costs us so much, we have 2000 workers R1 it is a tremendous amount.” “The COC has many parts that affect our production cost, especially the stipulation dealing with overtime. At night we have to increase the workers pay with 50%, on the weekends with 100% and on R2 public holidays with 300%. This is a big expense for us.” “Our CSR work affects our production cost with about 15%. It would be impossible for us to totally meet R3 the demands. I don’t think that there is a single factory out there that does it.” “We have to consider so many things. Everything costs. If we would have to cut on overtime we would have to hire more workers, meaning more dormitories and higher insurance premiums. It would R5 increase our costs even more.”

The respondents further argue that if they did not have to consider CSR they would be a lot more competitive in the market. The demand for apparel is price elastic, they contend; “If we didn’t have to pay for CSR we would be a lot more competitive.”

“Some of our clients think it is OK with a price increase but our small and local clients really don’t R2 understand CSR work. They only look for the lowest price possible.” “Only 50% of our clients from America and Europe think that it is OK that we raise our price because of R2 CSR.” “Don’t even talk about a 5% price increase they don’t even want to pay you one extra penny. The MNEs have sourcing companies all over the world. If China is too expensive, Bangladesh is there, if R4 Bangladesh is too expensive India is there. They have choices.”

The respondents were asked if they were getting any kind of compensation for their CSR work since it affects their production price and thereby also their competitiveness; “I think it is easy to meet everything in the COCs but salary payments and working hours. The buyers pay too little for our goods. Even though the minimum wage is higher here than in the northern part of the country the buyers still want the cheapest price possible. It is impossible for us to give such a low R1 price when we have to consider CSR demands.” “None of our clients provides compensation for our CSR work. I would really like to get some compensation for this but I don’t think it is possible. I don’t understand, they want a really low price and a short lead time and then the auditors show up to inspect our factory. Why don’t the CSR and R1 production departments communicate so they can compensate us for our CSR work. “We only have one big client and we would be able to do much more if they were willing to pay for it. Price is still what is most important. We can’t raise our production price because this is an international R3 business, the competition is so intense.” “No one of my clients compensates us for our CSR work, but they compensate us in another way. If we R4 do a good job they continue to place orders with us so that is a kind of compensation.”

The respondents also said that the demand for short lead times is creating a business environment where overtime is inevitable; “Usually, we let our workers have the Sunday off. During the high season we can’t, we have to meet the R2 deadline.” Researcher: “Do they have to work overtime as well?” “Yes, of course. Sometimes we can’t let them have a day off for 3 months. We have no choice but to let R2 them work overtime everyday.”

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Barriers to code of conduct compliance within the Chinese apparel industry “It is not hard for us to plan how many days or workers we need to fulfil an order. We always calculate how much time we need to produce one piece and then we just multiply it by the quantity ordered. Still it R3 would be impossible for us to meet the lead times without overtime.” “The competition between the biggest fashion companies is so intense. When one company launches a new collection the others do everything they can to catch up. Sometimes they just give us an order and R4 say, just do it as fast as you can.”

7.3.2.1 Analysis The author’s perception is that only a minority of the MNEs really care about the level of COC compliance. Hence, the most efficient way for a supplier to attract orders is through a low price and a short lead time. However, it seems like at least some MNEs walk against the stream and try to implement their COCs but since they are not willing to accept the price increase that CSR work entails little can be done. It seems like the respondents are reluctant to fully consider CSR demands since it makes them less competitive in the market. It is important to stay competitive in order to compensate for the fluctuating order inflow, the respondents argue. The reason why the respondents work with CSR at all is because they want to attract orders from the western world. The respondents pointed out that the reasons why they do business with international clients are because they want to learn from the western world and because the orders from overseas are seen to be more lucrative than the ones from domestic clients.

7.3.3 Subcontractors A supplier’s corporate conduct is interrelated with the corporate behaviour of other actors within the same supply chain. In this section follows a discussion on the suppliers’ subcontractors’ ability to create a foundation for the first tier suppliers to act in a “CSR friendly” way. All the respondents experience problems with not receiving fabrics used for production on time. Two of the respondents think that this is a big issue; “Only 60% of our ordered fabrics arrive on time, the remaining 40% come late or with quality issues. Sometimes our suppliers even change the price after we have placed the order. We try to negotiate but R1 it always ends up with us paying more.” “The price is not a big problem but our ordered fabrics often arrive late. Almost 30% of our ordered R3 fabrics arrive late.” “For the ones that we work closely with I would say that I know their delivery time by now. But it differs a lot form season to season. I work with YKK and boom they have to deliver 15 million zippers in a day. R4 Can I predict that? No, then we go overtime I have no choice.”

The respondents pointed out that the price fluctuations in the market for fabrics are only minor and that they do not affect the production price to any great extent; “Our costs are quite stable at the moment. In general the question is not about the price, but the R1 delivery time.” “Our costs don’t fluctuate much. When we have signed the contract we always pay according to it. The R3 problem lies with that some of our suppliers demand us to pay in advance.”

However, one of the respondents accentuated the issue with the shrinking margin in the industry. On the one hand he has to reduce his production price on the other hand his costs are rising;

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Barriers to code of conduct compliance within the Chinese apparel industry “Our costs don’t fluctuate. They just keep on increasing. The fashion industry is like this. Almost all the jeans look different because the customers think that it is boring to look the same all the time. Price R4 negotiation is really hard since our orders never meet the standards.”

The respondents pointed out that the unreliable deliveries constitute a hinder to their ability to adhere to the COC. The respondents said that it is easy to plan the production in theory but that it does not work like that in practice. The respondents feel that if they were given a more flexible delivery date it would solve many of their problems. However, it seems like the MNEs response to such a request is to say the least frigid. This is illustrated by the following quotations; “Only a small percentage of our clients can accept that we postpone our delivery. If we can’t deliver on time we have to send it by air and then we don’t have any profit left. But we rather send it by air than R2 pay a penalty. We want to keep a good relationship with our clients.” “If we can’t deliver on time we try to negotiate but it is very rare that we get our will through.”

“We can’t have late deliveries. They would “downgrade” us which means that we will get fewer orders in R3 the future.” “I can’t say that I have to delay the delivery because they don’t care, their marketing campaign has R4 already started.”

The respondents feel that the MNEs are non-negotiable once the contract is signed and that there is very little room for hiccups in production. Hence, overtime is left as the only tool to correct miscalculations and unpredictable incidents; “If we can’t deliver on time we usually discuss it with our clients. If we can’t send the order on time we have to pay a penalty or the air fee. With the margin right now it is impossible for us to pay this so we R1 never want to have a late delivery.” “Our suppliers make it hard for us because 30% of our ordered goods arrive late. Our biggest client doesn’t allow us to delay our delivery. We have no choice but to work overtime to meet their dead lines.”

“Any hiccup in the production process and it is going to be overtime.”

“If everything fails I will have to send the orders by air. I will not let that happen. Last year we delivered R4 6 million pieces in total and I only sent 6000 pieces by air. It was on my account.”

The respondents feel that there is no understanding from the MNEs regarding the cost increase related to more overtime than estimated and that this is affecting their margins; “Once the order is confirmed, it is confirmed. Unless the client makes some changes to the design or R1 style the price is fixed no matter if our costs rise.” “We try to reason with the merchandiser but it never works. In this market you offer a price and that is R4 the price. It is a contract based world, we have to stick to the contract.” “The possibility of changing the price after the contract is signed is very small. It might happen if our R5 costs have increased significantly but I wouldn’t count on it.”

7.3.3.1 Analysis The author’s perception is that the first tier suppliers are acting in a business environment with a high level of uncertainty. Costs are rising and unpredicted overtime affects the suppliers’ margins, on top of that some of the subcontractors demand advance payments. The suppliers are obliged to reduce costs to keep their clients “happy” and there is no room for miscalculations or incidents in the production process. The MNEs demand stability i.e. on

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Barriers to code of conduct compliance within the Chinese apparel industry time delivery and fixed price. All of this hampers the suppliers’ ability to adhere to the COC. It seems like the workers are the ones left to pay for the hiccups in the production process.

7.3.4 Other suppliers – the competition Based on the fact that all suppliers within the Chinese apparel industry are competitors and thereby also fight for the same orders it is assumed that the level of COC compliance is related to how other suppliers do business. In this section follows a discussion on how the corporate conduct of other suppliers affects the typical supplier’s ability to consider CSR. The respondents pointed out that most suppliers with international clients work with CSR but that the suppliers providing the domestic market still don’t see CSR as something important. This can be illustrated by the following quotations; “Everyone works with CSR nowadays. I don’t know about the small factories but all the medium sized R1 and big factories seem to work with it.” “All suppliers that sell overseas work with CSR today, but the suppliers that provide the domestic market R2 don’t care.” “If we talk about international clients almost everyone works with CSR nowadays, but among the R3 domestic clients CSR is not very common.”

Some respondents contend that CSR work is not voluntary and just something that many suppliers do to attract orders; “All the factories say that they work with CSR but in reality I don’t think many actually do.”

“Some factories really put an effort into CSR work. The other factories only do it because it is a must.”

The respondents pointed out that the competition is intense and that they do not only compete with other suppliers within the same city or region but that they compete globally; “It is hard for us to get new orders, the competition is so intense. Our clients don’t only come to us they go to many factories. One factory might offer them RMB 8 per piece another one RMB 10 per piece that R2 is how it works.” “Orders are hard to get. The MNEs have so many choices. We compete globally. I have been running this factory for six years. It is not only about the product, I have to provide a service company. Price, R4 lead time, quality and CSR are only basic requirements otherwise you are not even on the table.” “It is getting harder and harder to get orders in this industry. The price war is getting more and more R5 intense…with the new Chinese labour law it is hard to do business.

All the suppliers seem to work in the same way to attract orders. They compete globally and attract orders through low prices and short lead times. This can be illustrated by the following quotations; “Our competitors only think about the price and the lead time.”

“Price is very important to our clients but if they give us a price that is too low, we have no chance to R3 meet it.” “I am fast and to a reasonable price. Some of my competitors are faster but they are more expensive.”

“If you increase the price they won’t place as many orders with you, it is that simple.” “You have to position yourself either you are faster or you are cheaper.”

“It is very important to be able to offer a good price. We do business, profit is important. Quality and R5 scale is also very important. We have a big factory and the latest equipment, our customers like that.”

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Barriers to code of conduct compliance within the Chinese apparel industry Even though the suppliers are under pressure to continuously reduce costs in fear of losing orders to other suppliers the author got the perception that little is done to improve the productivity. This can be illustrated by the following quotation; “We try to increase the productivity by using new kind of sewing equipment… sometimes we come up R1 with new ideas and then we try to implement them.”

Instead it seems like focus is on costs saving measures such as turning of the lights and air conditioners when they are not needed; “We try to make our workers understand the importance of keeping the costs down. We tell them to R2 switch of the lights when they leave a room.” “Electricity consumption is a big issue. We try to find green alternatives to lower our consumption.”

The respondents pointed out that the productivity is kept high through management systems and production competitions urging the workers to work faster; “We have changed the production management. Before we let the workers finish the pieces themselves. Now we just let the workers sew one part of the garment. In this way they push each other to work faster. This is something we started with this year and it has turned out very well. This new R5 management has increased our productivity with over 10%.” “We have a big blackboard where we write how many pieces each production group produces, it works R5 really well. It makes our workers work faster.”

One of the respondents said that his margin is shrinking and that he finds it hard to increase the productivity. This can be illustrated by the following quotation; “On the one hand the prices from our suppliers are increasing, on the other hand the prices that we get from our clients are dropping. The only way to deal with this is economies of scale we have to spread R4 our overhead costs.”

7.3.4.1 Analysis The author’s perception is that it is very difficult for the suppliers to differentiate themselves and thereby they are not able to charge premium prices. It seems that the services they provide are very homogenous. Once the suppliers have met the basic requirements from CSR the only way to attract orders is through the right balance of price and lead time. The author’s perception is that the factory owners don’t think that this business is sustainable and that they therefore are reluctant to invest in “expensive” productivity raising measures. Instead the workers are urged to work faster and faster at the same time as the margin is shrinking.

7.3.5 The factory workers Three of the respondents have several thousand workers. It was the factory workers’ rights that were observed when the COCs were drafted in the west. Therefore it is important to understand the factory workers’ true attitudes towards work and the COC. In this section follows a discussion dealing with the Chinese labour market and the factory workers’ attitudes towards work. All but one respondent have faced a rapid growth in China during the last five-year-period. One of the respondents walks against the stream. During the last five-year-period the respondent reduced his workforce in China with about 50%, instead he has put up two new factories in Cambodia where the price of labour is cheaper;

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Barriers to code of conduct compliance within the Chinese apparel industry “We have about 700 workers here in China. Three years ago we had 1600 workers. It is so expensive R2 here in China nowadays. Now we have put up two factories in Cambodia with 3000 workers.” “It is hard to find experienced workers nowadays, China is becoming developed. No one wants to be a worker any longer. We want to move abroad, it is not profitable to produce here anymore. It costs us R2 RMB 1500 to keep our workers happy in China. In Cambodia we only pay RMB 450.”

It was found that most workers in the Guangdong province where the field study was carried out come from surrounding provinces. This can be illustrated by the following quotations; “Almost 90% of our workers come from the Chinese countryside. The workers are mostly from Sichuan, R1 Hunan and the Jiangxi province.” “90% of our workers come from Sichuan and the Guangxi province. They are so poor over there so they R2 come to us to find work.” “70-80% of our workers come from the countryside. Most of them come from Jiangxi, Sichuan, Hunan R5 and Guangxi.”

The respondents pointed out that the migrant workers are attracted by the relatively high minimum wage and that they come to Guangdong to find a job. This is illustrated by the two quotations below; “In the south we have higher minimum wages than in the north that is why they come to us.”

“The migrant workers don’t care much about the salary. They are so happy that they have found a job R5 and that they are able to stay in this city.”

However, it seems like only a minority of the workers decide to settle down Guangdong. The respondents said that most of the migrant workers only come to Guangdong to work for a couple of years. Thereafter, when they have made some money they return to the countryside; “Most of our workers stay with us for about five years. Some workers leave and go home, some workers dislike our complicated style and go to other factories. The workers want something that is easy to sew R1 since they are paid based on piece rate.” “Our workers stay and work for us for about two years, then they go home or to some other factory it R2 depends on their age.” “It depends on their age but most workers stay and work for us for about three years. Then most workers go back home. Especially women that have not yet found a husband leave. It is very important that they find a man. This is not a problem for the men. Within this business most workers are women R3 so the men have many women to choose from.”

The factory workers employed in the Guangdong province are poor and the author got the perception that they come to Guangdong with only one thing in mind: To make as much money as possible. Then they go back to their home province to build a house, get married and start their own small business. The respondents accentuated that the factory workers have a very positive attitude towards overtime since it means more money for them to make and ultimately an earlier return to the home province; “The workers need overtime and they don’t really mind to work overtime. The migrant workers from the north think that overtime is necessary. If I only let them work till five o’clock they think that they don’t have anything to do. They think it is a waste of their time to go home. Most workers want to work to nine R1 or ten in the evening otherwise they don’t think we have enough work for them to do.” “The workers don’t mind to work overtime. If I can give them more work they are happy, it means that R2 they will make more money.”

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Barriers to code of conduct compliance within the Chinese apparel industry “The workers want overtime. The workers know that the peak season is the season when they can earn R4 the most money. If I don’t give them enough overtime they will leave immediately.” “People who come to my factory work hard. They want to build a house for their family and get married.”

“Our workers like overtime, overtime means that they can make more money. If we don’t give them R5 overtime they don’t have anything to do and they will have to spend their money.”

All the respondents reported extensive overtime, one respondent with as much as 150 overtime hours per month. All the respondents reported an average working day to be 11-12 hours. To illustrate this; “Our workers accept something between 120-130 overtime hours per month, but 140-150 overtime R5 hours are also OK.”

The author found one thing alarming. Extensive overtime is so common in the industry so when the respondents talked about overtime they meant working hours exceeding a “regular” 12 hour working day. The quotation below illustrates this; “We hope that we would be able to control it so that the workers would only need to work between 9 R3 o’clock in the morning and 9:30 at night.”

However, one of the respondents declared that too much overtime is not good either; “Our workers want to work. If we don’t give them overtime they will not accept it. But too much overtime R5 is not good either.”

The author got the perception that the respondents know that they are in violation of the law when they give so much overtime. However, they still don’t think that illegal overtime is a big issue since the workers voluntarily want to work long hours. Two of the respondents described the overtime issue as a win-win situation; “The Chinese law says that we can give only 36 overtime hours per month but that is almost what I give my workers per week. Sometimes I give them 120 overtime hours per month. I think this is good for us R2 both, they want to make more money and we want to send our orders.” “I am so happy if one of my workers makes RMB 5000 it means that I am making RMB 5000 as well. R4 This is just how it is, everyone is just trying to do their best to make a living.”

Some of the respondents also declared that it would be hard to keep workers or recruit new ones if they were not able to give them a sufficient overtime package; “It is pretty easy for us to attract workers during the peak season when we have a lot of work to do. Stability and a lot of work are what attract the workers the most. During the low season it is hard for us R1 to attract workers.” “I think that most workers want to work 11-12 hours a day. If I can give them a lot of overtime they will make RMB 1600 per month. If I give them regular working hours they will only make RMB 700-800 per R2 month. If I can’t give them enough overtime they will leave and go to other factories.” “I have a lot of work for my workers. I am famous in this whole area, if you come to my factory I have a R4 lot for you to do. And I always pay my workers on time. The workers know this and they like it.” “The workers believe that a factory that has a lot of overtime and that pays on time is a good factory.”

Moreover, long hours don’t seem to be enough for the Chinese factory workers. One of the respondents pointed out that some workers are so desperate to make money that they even work night shifts at other factories after the “regular” 12 hour working day;

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Barriers to code of conduct compliance within the Chinese apparel industry “I think 2% to 3% of our workers even go to other factories to earn even more money. They are not R1 allowed to but with no evidence I can’t catch them.”

The respondents pointed out that the average factory worker looks for a salary significantly higher than the statutory minimum wage (RMB 860 Nov, 2009 Guangdong province) and that this is why they are willing to work extensive overtime hours. The quotations below illustrate this line of reasoning; “The average factory worker looks for RMB 3000 per month”

“Workers always want to make as much money as possible, this is the Chinese culture I believe. It doesn’t matter how much money you give them they would still want to work overtime to make even R1 more.” “Most of our workers are so poor. If they can make more money they rather do that than watching TV.”

“If I would be able to give my workers RMB 2000 for 8 hours a day they would still want to work more. If there is time there is an opportunity to make money. They don’t need so much money but they want to R5 save for the future.”

However, a slight attitude change towards overtime among the younger workers’ was found; “People born in the 80s are happy with RMB 2000. I made some research, the younger workers use 90% of their income themselves. The rest of their income they give to their family. It is different for the R3 older workers they give about 80% of their income to their family so they want to work more.” “People born during the 90s don’t look for money anymore. They just want a job. If they make R4 RMB 1000 they are happy.” “The older workers want to earn more. They have a family to support.”

Some of the respondents pointed out that the workers’ ambition to make as much money as possible is creating tensions between the factory workers since the salary is based on piece rate and since the workers are not allowed to finish a whole garment themselves. This management method was discussed earlier and is implemented by all the respondents to increase the productivity. This is illustrated by the quotation below; “We have two types of workers. Some workers just want to make RMB 1000 and some are pushing for RMB 3000. This is a big problem because every worker does only sew one part of the garment produced. So if a guy up streams all of a sudden stops the other workers down streams will get angry R4 and say: I want more work to do.”

The respondents pointed out that it is not a problem to make sure that the workers are able to meet the statutory minimum wage. The respondents contend that the workers are willing to work extremely hard to make it and a lot more. The problem lies with whether they are able to make it within the legal overtime limit. This is solved by some of the respondents through a safety net. The respondents pointed out that the workers that do not produce the amount needed to meet the minimum wage are fired; “The statutory minimum wage is about RMB 900. If they work 36 overtime hours per month they must be able to make this amount. We provide 15 days of training to make sure that they are able to make at R3 least RMB 900 within the overtime limit.” “We don’t hire workers based on the minimum wage. We base the payment on piece rate. For the first three months we have a safety net if they don’t reach the amount needed to reach the minimum wage.”

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Barriers to code of conduct compliance within the Chinese apparel industry Some of the respondents find it hard to manage the workforce. Workers may all of sudden leave. This problem is especially extensive around the Chinese New Year holiday when most of the workers go back home to see their families; ”It is hard for us to find new labour, especially in the year end just before the Chinese New Year. Many workers want to work more just before the Chinese New Year so many quit and go to smaller factories that don’t care about CSR. Almost 30% of our workers leave during this period it is just crazy. When they have left it is impossible to get them back before the New Year is over, if ten leave I might just get R1 one or two back.” “We like the local workers because we know that they will come back after the Chinese New Year. After the Chinese New Year there is always a big question mark, we never know how many workers that will R4 come back.”

It was found that workers leave voluntarily when there is not enough work to do and therefore new workers are hired continuously. It was found that it is hard to find experienced workers and that there is a significant productivity gap between new workers and workers with experience; “When they start working their productivity is quite low, only 70% of a regular worker. It takes about a R2 month for them to catch up.” “It depends on the workers, if they are willing to learn or not. In average they need two months of training. I don’t provide a training program I just put them in production. They are going to be less R4 productive for the first two months and then they will catch up. This is the easiest way for me.”

It was found that besides work most workers don’t do “anything”. The author got the perception that most workers are not willing to take part in any extracurricular activities even if they are offered free of charge. This can be illustrated by the following quotation; “I try to give the workers more entertainment. I show them movies on a projector. I have been doing R4 this for the last few months but they are just not interested.”

7.3.5.1 Analysis The author’s perception is that the factory workers want to make as much money as possible. The statutory minimum wage seems enough to constitute a living wage in the Guangdong province. However, it does not seem like the workers come here to live. The workers’ positive attitude towards overtime is because of the low pay but does also rest on the fact that more overtime leads to an earlier return to the home province. The positive attitude towards overtime among the workers and the constant demand for shorter lead times put the suppliers in a tight spot. If they cannot provide the workers with enough overtime the workers will leave and the supplier will be out of business. If they follow the law, they will both find it hard to attract orders and workers due to the market demand for short lead times and the workers’ pursuit for as much money as possible. Furthermore, it seems like the labour market is hard to predict. Workers come and leave easily without forewarning and this is making it hard for the suppliers to plan their production effectively. When workers leave, the suppliers can get new ones within a reasonable time but the catch lies with that the new workers’ productivity is relatively low. In the end the suppliers have no choice but to go overtime in order to meet the deadlines.

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Barriers to code of conduct compliance within the Chinese apparel industry

8. Final analytical discussion In this chapter the empirical data is put together with the “Barriers to COC compliance analysis model” developed in chapter 6. This is followed by a final theoretical discussion. In the next chapter the research questions are answered and the author’s own reflections are presented.

8.1 The redefined Barriers to COC compliance analysis model Beneath follows a description of the redefined “Barriers to COC compliance analysis model”, beneath referred to as the “Barriers to COC compliance model”.

The “Barriers to COC compliance model” shows that that the main barrier to COC compliance within the Chinese apparel industry lies with that the demands from the widely used purchasing model and the demands from the factory workers are inconsistent with the demands from the CSR departments. The demands from the “sub-contractors” and the “other suppliers” were not found to be inconsistent with the demands of the CSR departments. However, they are still a part of the model since their behaviours hamper the supplier’s ability to adhere to the COC. The doted lines show their interrelation. The model can be described as a tug-of-war. The CSR departments are standing on the right side pulling the rope in order to improve COC compliance. The purchasing departments and the factory workers are standing on the other side pulling the rope in the opposite direction in order to fulfil their own needs. The different actors in the model are discussed below in the following order, Chinese society, purchasing companies, the factory workers, the subcontractors and lastly other suppliers. Chinese society: The grey background illustrates Chinese society. The author argues that the Chinese government overlooks civil law violations in its ambition to attract as much foreign investment as possible to maintain a speedy economic growth. The ambition to go from a

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Barriers to code of conduct compliance within the Chinese apparel industry developing country to a developed country creates a business environment where competitive advantage in terms of price and speed can be reached through ignorance of the law. This has resulted in a society where the workers’ rights are more or less ignored. Therefore the market forces are left to decide under what circumstances production takes place. The level of COC compliance can therefore be described as a tug-of-war. Purchasing companies: In the MNEs’ struggle to stay competitive, stability throughout the supply chain is imperative. The MNEs “must” deliver the right goods at the right time at the right price to the ever so bored customers in the west. Therefore the MNEs are in a position where they have no tolerance to hiccups in production. The demands from the purchasing departments and the CSR departments are to a large extent inconsistent. On the one hand the purchasing companies want the goods to be produced to the cheapest price possible and with a short lead time, on the other hand they want the suppliers to fulfil CSR requirements. However, from the suppliers’ point of view the most efficient way to provide a competitive price and a short lead time is through violation of the law and consequently also the COC. Factory workers: The author argues that the workers employed in the Chinese apparel industry do not know what the best is for them and that they therefore are taken advantage of in production. It seems like their poverty has lead to a manic struggle for money. In China production is based on piece rate. It seems like the workers see everything that slows down the working speed as an obstacle, i.e. everything from co-workers working too slowly up streams to safety equipment slowing down the production process. The salary is so low that the workers ignore their own health and long hours are a must to be able to attain a reasonable amount by the end of the month. It is obvious that the COC has been drafted in the west based on western values and that the stipulations are inconsistent with the will of the Chinese factory workers. The author agrees with Keinert (2008) that companies operating on an international scale would be more successful if they would adapt their codes to the local environments. The positive attitude among the workers and the constant demand for shorter lead times put the suppliers in a tight spot. If the factory manager cannot provide the workers with enough overtime the workers will leave and consequently he will be out of business. If the factory manager follows the law, he will both find it hard to attract orders due to the demand for short lead times and workers due to their pursuit for as much money as possible. The positive attitude towards overtime among the Chinese factory workers can be seen as a major barrier to COC compliance. Furthermore, the labour market within the Chinese apparel industry is hard to predict. Workers seem to come and go easily without forewarning. This is making it hard for the factory managers to plan production effectively. When workers leave, the suppliers can get new workers within a reasonable time but the catch is that their productivity is significantly lower. Consequently they have no choice but to go overtime to meet the “non-negotiable” demands from the MNEs. Subcontractors: The author argues that the first tier suppliers are acting in a business environment with a high level of uncertainty. The behaviour of the subcontractors can be seen to mirror the “true” circumstances in Chinese apparel manufacturing. The unreliability regarding delivery times puts the first tier suppliers in a tight spot since the MNEs seem to have non-tolerance towards hiccups in the production process. On top of that some subcontractors demand advance payments which have a negative impact on the first tier suppliers’ cash flow and thereby also their ability to pay the workers on time. Other suppliers: The author argues that the competition in the market is intense and that the services provided have a high level of homogeneity which leaves the suppliers in a situation where it is hard to differentiate oneself and thereby it is hard to charge premium prices. The suppliers are left to listen to the market in order to stay in business. And since the market is not willing to pay for the higher cost that CSR work entails there is only a small room for CSR.

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Barriers to code of conduct compliance within the Chinese apparel industry

8.2 Final theoretical discussion The author argues that the main barrier to COC compliance within the Chinese apparel industry lies with that the demands from the widely used purchasing model and the demands from the factory workers are inconsistent with the demands from the CSR departments. It is impossible to hold one MNE responsible for under what circumstances garments are produced in China. The suppliers react in accordance with the demands on the market not in accordance with the demands of a single MNE. According to the interdependence theory by Pfeffer and Salancik (2003) presented in chapter 5 the fight for survival is the underlying cause why organizations ignore demands. The result of the field study shows that in the apparel suppliersâ&#x20AC;&#x2122; fight for survival CSR demands are ignored in order to stay competitive in a market where the ability to provide a low price and a short lead time is the only efficient way to attract orders, a race that can be described as the survival of the cheapest. In accordance with the theory by Keinert (2008) also presented in chapter 5, industry attributes have a significant impact on the level of COC compliance. It was found that the Chinese apparel industry is an industry with such fierce competition that there is only a little room for CSR. The services provided by the suppliers within the Chinese apparel industry are homogenous and therefore it is hard for the suppliers to differentiate themselves and charge premium prices. Instead the suppliers are in the hands of the market forces. The competitive environment discussed by Keinert (2008) is also affecting the level of COC compliance. The competition between the suppliers in the Chinese apparel industry is so intense that the supplier finds itself unable to fulfil any other interests than its own. Resulting in a situation where the workers and the environment are exploited.

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Barriers to code of conduct compliance within the Chinese apparel industry

9. Conclusion In this chapter the research questions are answered. Thereafter the author’s own reflections are presented and some suggestions for future research are discussed.

9.1 Answers to the research questions In this section the author intends to answer the research questions: 1. What are the main issues regarding COC compliance among suppliers in the Chinese apparel industry? The conclusions drawn from the study are presented in 4 points below, each of which can be seen as a major COC compliance issue. 1. Chinese suppliers have a negative attitude towards the national labour legislation and they do not feel obliged to follow it. 2. Safety is infringed due to poor management of the workers and the workers’ lack of interest regarding safety precautions and safety raising measures. 3. Extensive overtime is very common in the industry. All the respondents reported problems with extensive and uncontrollable overtime. 4. The respondents find it hard to compensate their workers on time and to the right amount. Overtime compensation is rare in practice. 2. What are the barriers that give rise to these COC compliance issues? The conclusions drawn from the study are presented in 8 points below, each of which can be seen as a barrier to COC compliance within the Chinese apparel industry. 1. The Chinese government has created a business environment where ignorance of the law is an effective way to reach competitive advantage. 2. The widely used purchasing model in the industry i.e. price analysis constitutes a major barrier to COC compliance. The fact that contracts are awarded based on how inexpensively the suppliers can produce and how fast they can deliver undermine CSR work. 3. The fluctuating order inflow is making it hard for the suppliers to plan production effectively. 4. The subcontractors hamper the first tier suppliers’ ability to adhere to the COC through their unreliable deliveries followed by the MNEs’ non-tolerance towards hiccups in production. 5. Hiccups in the production process leads to unpredictable overtime and problems with overtime payments. 6. The homogeneity of the services provided and the intense competition in the market have created a business environment where it is hard to differentiate oneself. Consequently, it is hard to charge premium prices. This is hampering the supplier’s willingness to consider CSR in fear of loosing orders. 7. The factory workers’ positive attitude towards overtime puts the factory managers in a tight spot. If the factory managers follow the law it is hard to both attract orders and workers due to the market demand for short lead times and the workers’ ambition to make as much money as possible.

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Barriers to code of conduct compliance within the Chinese apparel industry 8. The unpredictability in the Chinese labour market is making it hard for the suppliers to plan production effectively.

9.2 Personal reflections and suggestions for future research This study focused on collecting the Chinese suppliers’ views on COC compliance issues. Unfortunately, the issue with COC compliance is not something that can be solved in a sudden. One of the more interesting findings presented in this thesis is the one dealing with the workers’ attitudes towards overtime. Since the workers’ attitudes towards overtime do not seem to be congruent with the COC one might ask whose interest it would serve to implement the stipulation in question. The author argues that the overtime issue is still an important one to be solved. The prevalent poverty among the workers is creating a behavior where health is ignored to the advantage of money making. Excessive overtime leads to fatigue and work related accidents. It was found that accidents are common in the Chinese apparel industry. This can be illustrated by these two quotations; “We have accidents every week. Workers cut their fingers it is very common.”

“First we thought of setting up our own clinic but then we changed our mind when we realized that we R4 would be liable if something really happens.”

The extent to which the findings are specific to the Chinese apparel industry is a question only future research can answer. It would therefore be interesting to use the analytical tool developed for this study in another geographical setting. The barriers to COC compliance is a topic that has not been adequately explored, mostly because it is something that most people are reluctant to talk about in fear of loosing orders. Most companies started to work with CSR as a response to NGO activities during the 90s, unfortunately only a few seem to take the work seriously. However, CSR is now a multimillion dollar industry itself and countless third party agencies are auditing factories. Nevertheless, as this study has shown, in reality little has changed in terms of workers’ rights. Probably mostly since the market is not yet willing to pay the cost that CSR work entails. This makes it hard for the MNEs that really try to do something about the situation. In the end they have no choice but to keep providing their easily bored customers with new items everyday to prices that are too cheap to ignore. To calm the customers, China “promises” the MNEs with their extensive laws that the production takes place under regulated forms. The suppliers 6 “promise” the MNEs the same by using double books . In the end the MNEs have no choice but to do the same in fear of loosing orders. Hence it would be interesting to study what the true cost increase would be if the garments in the Chinese apparel industry were produced in accordance with the COC and if there is a market willing to pay for it. Another question that arose during the field study was the one dealing with short lead times and fixed delivery dates. Since these demands more or less undermine the possibility to implement the stipulation on overtime one might ask if it is reasonable for the MNEs to keep pushing for its implementation. CSR work costs and maybe it is more efficient to focus on things within the CSR “budget” than to focus on insolvable things that “no one” is willing to pay for.

A factory keeping “double books” implies that the factory owner keeps one “CSR friendly book” that he shows to the auditor during factory audits and one book for his own records.

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Barriers to code of conduct compliance within the Chinese apparel industry The author argues that business to a large extent will continue as usual unless a true transparency can be created all the way to the end-customer. The author argues that CSR costs and that no one along the supply chain is willing to bear the cost unless it can be passed on to the customers in the end. However, the author further argues that the suppliers in the Chinese apparel industry can meet any contract, but when corners are cut the workers and the environment are left to pay. The suppliers in China are not without morals or ethics but they have a business necessity to make ends meet. The authorâ&#x20AC;&#x2122;s recommendation to MNEs trading apparel with Chinese suppliers is that they need to make it as easy as possible for their suppliers to meet the stipulations of the COC. As this study has shown, most suppliers in the Chinese apparel industry prefer to work with several MNEs. Hence, if there would be more consistency among the MNEs regarding the attitude towards the level of implementation, all parties would be better off.

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Barriers to code of conduct compliance within the Chinese apparel industry

10. The CSR push model In this chapter an alternative purchasing model is introduced. The “CSR push model” creates a possibility to deal with excessive overtime and on time payments without going from outsourcing to inhouse production.

The issues with COC compliance can actually be solved in a sudden. The answer is in-house production. However, the author still argues that in-house production is not suitable for MNEs in the fashion industry. A strong seasonal demand and trends that come and go are making it hard to make money with anything but a flexible supply chain. The traditional view of a purchasing department is to reduce costs and therefore many purchasers can be seen as resistors to CSR implementation. The purchaser has to consider conflicting logics in his decisions, price cuts versus demands on higher wages and shorter hours in production. However, if the COC is going to make a real impact it has to be integrated into the business. Moreover, the purchasing company must make it easy for the suppliers to meet it. In the “CSR push model” below the author tries to illustrate how the issues with excessive overtime and one time payments can at least partly be solved. A stable order inflow is a prerequisite to be able to address the issues with COC compliance. A stable order inflow is important for several reasons: An unstable or low order inflow will make it hard for the factory manager to keep the factory workers due to lack of work. Secondly an unstable or low order inflow creates a situation where the factory manager has to attract orders from other “CSR-ignoring-companies” in order to get a satisfying utilization of the facilities. If the factory manager has to adjust his production to the market demand he may have to overlook CSR demands to the advantage of a low price and a short lead time. Furthermore, an unstable order inflow makes it difficult for the factory manager to predict the size of the workforce needed and the amount of time required to fulfil an order. In short it impedes effective production planning. The author argues that this leads to uncontrollable overtime. The author argues further that an unstable order inflow creates an environment where the supplier adopts a “sell as much as you can I don’t know what is going to happen tomorrow” approach. However, it is easier said than done to stabilize the order inflow. To make sure that the suppliers get enough orders throughout the whole year their own flexibility must be scrutinized. It is much easier to work with suppliers that have a wide product range and therefore are able to produce garments throughout the whole year. Many suppliers are also reluctant to work with only one client which means that several clients often competitors will have to cooperate. Nevertheless, only when the order inflow is stabilized CSR issues can be truly addressed. However, all measures leading to a higher level of COC compliance will also lead to increased production costs in the short run. The reduction of working hours has an adverse effect on the utilization of the facilities. With fewer working hours more workers are needed, everything else unchanged and this leads to increased costs. In a factory where sewing machines are used, each of which is operated by one person, additional workers cannot be introduced unless additional machines are purchased. On top of that we have expenses covering lodging, canteen, insurance and training. The purchasing model must therefore shift from price analysis to cost analysis. Meaning that it has to shift from price quotations to cost break down analysis. The author argues that the price analysis used today does not lead to anything but a shrinking margin. Through cost analysis the true cost for production can be calculated and the incentives to invest in productivity raising equipment increases.

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Barriers to code of conduct compliance within the Chinese apparel industry

In the model above three purchasing companies have adopted a collective purchasing and CSR model. However the model is also applicable to suppliers with only one client. But in such a case the supplier in question must first of all be willing to work with only one client and the client must have got the ability to provide orders throughout the whole year. A stable order inflow is creating an environment where the supplier does not need to adopt the “sell as much as you can I don’t know what is going to happen tomorrow” approach. Instead focus is on how transaction costs can be lowered and productivity can be increased. In order to address the issue with stability and on time delivery a closer relationship with the subcontractors must also be attained. The author argues that the major reason to uncontrolled overtime lies with the instability in the market and the purchasing companies’ non-tolerance towards hiccups in the production process. This model cannot be used for the purchasing company’s whole production since the order inflow in the fashion industry is fluctuating in accordance with changing consumer demand. However, if the purchasing company in question has an order inflow that is big enough to keep several factories “busy” orders can preferably be moved to the suppliers chosen for the COC implementation. This means that the purchasing model currently used i.e. price analysis still will have to be used to some extent in order to compensate for the fluctuating market demand. Furthermore, the author argues that full compliance regarding working hours will never be attained in the Chinese apparel industry. The factory workers’ positive attitude towards overtime is still the biggest hinder to full COC compliance. However, if the objective of the COC is to ensure that the workers’ rights and demands are fulfilled it can be questioned if the legal limit of 36 overtime hours is suitable. The author argues that it is not. However it is important to agree on a working day that is feasible and that first and foremost gives the workers sufficient time to rest to prevent work related accidents.

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Barriers to code of conduct compliance within the Chinese apparel industry

Reference list Written sources Bryman, Alan & Bell, Emma 2007. Business research methods. 2. ed. Oxford: Oxford University Press Dillon, Michael 2009. Contemporary China: an introduction. London: Routledge Davis, Keith 1960. Can Business Afford to Ignore its Social Responsibilities? California Management Review, Vol 2, No 3: p. 70-76 Elsayed, K. 2006. Re-examining the Expected Effect of Available Resources and Firm Size on Firm Environmental Orientation: An Empirical Study of UK Firms. Journal of Business Ethics Vol. 65, p. 297308 Eisenhardt, K.M. 1989. Building Theories from Case Study Research, Academy of Management Review, Vol. 14 Issue 4, p. 532-550 Garriga, Elisabet & Melé, Domènec 2004. Corporate Social Responsibility Theories: Mapping the Territory: Journal of Business Ethics, Aug 2004 Part 1/2, Vol. 53, Issue 1/2, p. 51-71 Grojean MW, Resick CJ, Dickson MW, Smith DB 2004. Leaders, Values, and Organizational Climate: Examining Leadership Strategies for Establishing an Organizational Climate Regarding Ethics. Journal of Business Ethics Vol. 5, Issue 3, p. 223-241 Huseted BW, Allan D 2000. Is it ethical to use Ethics as a Strategy? Journal of Business Ethics Vol. 27, p. 21-31 Jenkins, Rhys Owen, Pearson, Ruth & Seyfang, Gill 2002. Corporate responsibility and labour rights: codes of conduct in the global economy. London: Earthscan Publications Keinert, Christina 2008. Corporate Social Responsibility as an International Strategy Heidelberg: Physica-Verlag Heidelberg Kaptein M 2004. Business Code of Multinational Firms: What Do They Say? Journal of Business Ethics Vol. 50 Issue 1 p. 13-31 Lonsdale, C 2002. “Outsourcing” in Day, Marc (red.) (2002). Gower handbook of purchasing management. 3. ed. Aldershot: Gower p. 63-74 Mamic, Ivanka 2004. Implementing codes of conduct: how businesses manage social performance in global supply chains. Sheffield: Greenleaf Neef, Dale 2004. The supply chain imperative: [how to ensure ethical behaviour in your global suppliers]. 1. ed. New York: American Management Association Neubaum DO, Mitchell MS, Schminke M 2004. Firm Newness, Entrepreneurial Orientation, and Ethical Climate. Journal of Business Ethics Vol. 52 p. 334-347 Ockborn. F 2006. Views on Barriers to Successful Code of Conduct Implementation – a case study of H&M and its suppliers in India – Stockholm; Stockholm University. Pfeffer, Jeffrey & Salancik, Gerard R. 2003. The external control of organizations: a resource dependence perspective. [New ed.] Stanford, Calif.: Stanford Business Books Pinkston TS, Carroll AB 1996. A retrospective Examination of CSR Orientations: Have they Changed? Journal of Business Ethics Vol. 15, Issue 2, p. 199-206

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Barriers to code of conduct compliance within the Chinese apparel industry Ruhnka JC, Boerstler H, 1998. Governmental Incentives for Corporate Self-Regulation. Journal of Business Ethics Vol. 17 p. 309-326 Spar D, La Mure , L. 2003. The power of activism: Assessing the Impact of NGOs on Global Business, California Management Review, Vol. 45, Issue 3, p. 78 Sundström, Mikael & Wilert, Marcus 2006. Global codes, local rules: implementing codes of conduct in China. Stockholm: Stockholm School of Economics Utting, P. 2002. ”Regulating business via Multistakeholder Initiatives: A Preliminary Assessment”, in Voluntary Approaches to Corporate Social Responsibility: Readings and Resource Guide. A U. N. NonGovernmental Liaison Service Development Dossier. p. 61-130 Welford, R. 2002. Distributing Development: Conflicts between Corporate Environmentalism, the International Economic Order and Sustainability, in Utting, Peter (red.) (2002). The greening of business in developing countries: rhetoric, reality and prospects. London: Zed p. 135-158 Wonacott, P. 2003. China’s factories Compete – With each other – Glut of Plants Allows Retailers To Drive Prices for Goods; It’s Survival of the Cheapest. The Wall Street Journal Europe Åkerblom, TA. 2009. CSR in China: a legitimate cause? Gothenburg; Gothenburg University

Electronic sources China.org 2006 – http://www.china.org.cn/english/government/154646.htm Chinanewswrap 2009 – http://chinanewswrap.com/2009/06/15/chinas-urbanization-rate-reaches-457/ DI 2009 – Article in Dagens Industri published August 7, 2009 http://di.se/Nyheter/?page=/avdelningar/artikel.aspx%3FArticleID%3D2009%255C08%255C07%255C3 47609%26o%3Dsp3%26SectionID%3DEttan%26menusection%3DStartsidan%3BHuvudnyheter H&M Code of Conduct 2009 – http://www.hm.com/filearea/corporate/fileobjects/pdf/en/COMMON_CODEOFCONDUCT_ENGLISH_PD F_1124202692491_1150269822085.pdf Impacct 2008 – Annual report 2008 www.impacttlimited.com Mamic, Ivanka 2003 – Business and code of conduct implementation – How firms use management systems for social performance, International Labour Office, available at: http://www.ilo.org/images/empent/static/mcc/download/supply_chain.pdf People’s daily 2001 – Article published May 17, 2001 http://english.peopledaily.com.cn/200105/17/eng20010517_70205.html Taiwan textile federation 2008 – http://ttf.textiles.org.tw/ http://ttf.textiles.org.tw/Textile/TTFroot/%AF%BC%C2%B4%AB~%B6i%A5X%A4f%B6T%A9%F6%A4%A4%B0%EA.pdf WTO 2008 – p 104,108, 111, 114 http://www.wto.org/english/res_e/statis_e/its2008_e/its08_merch_trade_product_e.pdf

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Annexes Annex A: Interview guide Annex B: H&Mâ&#x20AC;&#x2122;s Code of Conduct

Barriers to code of conduct compliance within the Chinese apparel industry

Annex A Interview guide Part 1

Introductory questions 1. 贵公司是什么时候开始业务的?

1. How long have you been in business?

“This company was established 30 years ago. I have been working for this company for six years.”

“We started in Hong Kong in 1979 and moved to Dongguan in 1999. In 2002 we moved some of our R2 production to Cambodia where we now have two factories with 3000 workers.” “We started in Hong Kong in 1996 and moved to Shenzhen in 2003. We actually built this factory.”

“My cousin started this company 28 years ago. Now he has passed the business on to me. I have R4 been working here for six years now.” “We have been here in Guangzhou since 1992. The company started in Hong Kong in 1985.”

2. 贵公司什么时候开始推行企业社会责任?

2. How long have you been working with CSR? “We started to work with CSR four years ago.”

“I started working here six years ago but the company has been working with CSR since 1998.”

“We have been working with CSR since year 2000. When we built the factory in Shenzhen CSR was taken into consideration in order to ensure that we would meet the demands from our international R3 clients.” “We have been working with CSR for six years. I am actually the one who started the work with CSR.” R4

“We have been working with CSR since 1999. It has been one step at a time.”

3. 贵公司为什么开始推行企业社会责任?

3. Why did you start working with CSR?

“We had to start with CSR, it was a request both from the Chinese government and our international R1 clients. It felt like everybody started to work with CSR back then.” “We started to work with CSR in 1998 because our American clients wanted us to.”

“From the beginning it was a demand from one of our clients but now it has become an important R3 competitive advantage.” “CSR was a customer requirement, our biggest client wanted us to work with it so we started.”

“From the beginning CSR was a demand from our clients but our workers also slowly start to R5 understand what rights they have.”

4. Do you think you were early with CSR work?

4. 你认为贵公司在行内是否很早便推行企业社会责任?

“We were neither early nor late we needed to start so we started. All the medium sized companies R1 started at the same time I believe.” “I think we were pretty early with CSR work.”

“I think we were quite early, many of our competitors have been trying to see what we have done. We R3 are proud that we were early with this kind of work.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I don’t think we were early but we were not late either.”

“I think we were pretty early with CSR work. Most of the factories in the vicinity started as late as in R5 2002, 2003.”

5. Do the COCs that you work with differ a lot? If they have differences what is the difference?

5. 各公司的行为准则的内容是否有不同? 有什么不同?

“All our international clients have a COC. The COCs look all the same to me, just basic legal requirements. The stipulation about child labour is always the same. Well some more detailed parts R2 can have small differences.” “The COCs differ a lot but mostly in terms of the level of implementation. Some American companies demand that we to the letter follow the Chinese labour law regarding overtime. The American R3 companies are so much tougher.” “The COCs don’t differ much but the attitudes towards the stipulations differ widely. The Americans only care about the paper work. They come once and then we really show off and everything looks perfect. The Europeans really try to improve the standards. They tell me that they will show up in the R4 middle of the night and they really do. They have been doing it for the last two years.” “The Americans only want us to say that we meet it, but they really don’t care.”

“We like to work with the Europeans because they accept if we don’t meet the standards. We can R4 always discuss with them.” “One of our clients comes once every three years and then we show off and then they are gone for R4 another three years.” “The COCs don’t differ much in general but the monitoring programs do. Some of our clients use a third party for monitoring, some of our clients have their own auditing personnel. Most of our clients R5 come to our factory once a year.” “Many of our clients work with the BSCI standard. The BSCI standard allows a 60-hour-working-week but this COC does only allow us to have a 53-hour-working-week in accordance with the Chinese R5 labour law.”

Part 2

Questions related to the code of conduct

Legal requirements

法律上的要求

6. What do you think about the Chinese legal requirements?

6. 你对中国法律上的要求有什么看法?

“The Chinese labour law is just a burden to us... it was much better before. It is because of this new R1 law so many factories have closed down.” “The new Chinese labour law has totally changed our workers’ attitude towards work. The new law gives the workers right to their overtime compensation for the last ten years but this was never put into R1 the cost. We have 2000 workers how are we going to pay for it, it is impossible.” “It was much easier before to discuss with the workers, now it is really hard. They know their rights and R1 some of them are really trying to make trouble.” “China has so many rules but for us in the industry it is hard to fulfil them all.”

“The Chinese labour law is a problem. I know that the law is good for the workers but for us in the R2 management it is just a burden.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “The government doesn’t implement the law. All the requirements that we fulfil come from our clients.” R5

“I think the biggest problem with the COC lies with the Chinese labour law. I don’t know what the laws look like in Vietnam and Bangladesh, but if they are not as strict the COC is probably very easy to R5 meet.”

Child labour

童工

7. Is it hard for you to find labour?

7. 遇上无法招聘工人的困难?

”It is hard for us to find new labour, especially in the year end just before the Chinese New Year. Many workers want to work more just before the Chinese New Year so many quit and go to smaller factories that don’t care about CSR. Almost 30% of our workers leave during this period it is just crazy. When they have left it is impossible to get them back before the New Year is over, if ten leave I might just get R1 one or two back.” “It is getting harder for every year to get the workers back after New Years. The government is trying to help the people form the north to start their own small businesses and therefore fewer and fewer R1 workers come back after the New Year holidays.” “It is hard to find experienced workers nowadays, China is becoming developed. No one wants to be a worker any longer. We want to move abroad, it is not profitable to produce here anymore. It costs us R2 RMB 1500 to keep our workers happy in China. In Cambodia we only pay RMB 450.” “It was hard for us before to find labour. Thanks to our CSR work we don’t have this problem anymore. R3 Nowadays our workers tell their friends that they should come and work for us.” “It would only take us three days to get 10 new workers.”

“The labour market in China is insane. Right before the Chinese New Year it is impossible to find new R4 workers.” “It is getting harder to find labour. There are so many factories out there. We try to send people to high schools well-known for textile related studies but it doesn’t work very well. High-school graduates don’t R5 want to work in a factory. They want a job in a nice environment where they can look good.” “We get most of our new workers through the workers we already have. Many workers help us and R5 introduce their relatives and friends.” “It is getting harder to find labour. We can only provide the minimum wage and our margin is very low.” R5

8. Is it hard to determine the age of new factory workers?

8. 聘请新工人时，贵公司是否得悉每名工人的真实年龄?

“It is not hard for us to check the age of new workers, we always check their ID cards. I know that their ID cards may be fake but now we pay all our workers through their banks. The banks are able to check R1 if the ID card really belongs to the worker or not.” “Child labour is not a big problem for us, we always check our new workers’ ID cards. We also only hire people with a couple of years of experience. In 1998 when we started to work with CSR we put a R2 lot of effort into this.” “We always check the ID card. First our security guard checks it and then we do, if we are in doubt we R3 don’t hire the person in question.” “Sometimes yes, I try to implement a policy where we do not hire anyone under 18 years of age. The problem lies with that people that are 18 or above often have a high school degree so why would they R4 come and work for us in this factory?”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “We hire people between 16 and 18, but we are really against child labour. We do everything we can to R4 prevent it.” “One problem in China is the one child policy. Parents may have one official son with an ID card and six daughters with no identification. It happens that females borrow ID cards from friends. It is too bad R4 that this industry is dominated by female workers.” “We always check their ID cards, this factory has not got any child labour.”

9. What is your opinion about child labour?

9. 你对童工有什么看法?

“Child labour is not acceptable. However, I don’t think that child labour is a big problem in China. China is richer than many other Asian countries and on top of that we have the one child policy. I don’t think R1 any parent would want their child to work when he is under-age.” “Child labour is not acceptable. Children should be taken care of and go to school, not work.”

“This is an important question. All our clients demand it, if we would have child labour we would immediately be out of the question. However, under these circumstances we don’t need to hire child R3 labour. This is not a problem for us.” “We are against child labour, I am personally strongly against it. I have started my own print factory, the print factory I used before had child labour and that is why I started one myself. One problem is that many of these companies are run by families and sometimes they use their own children. If someone is having his six year old son helping him out in the factory I can’t yell at him, I better do it R4 myself.” “I don’t like child labour. They work slowly and they just want to play. They don’t have any energy to work. We would accept people at 16 years of age but we rather hire people that are 30+. Most of them R5 have a family to take care of so they work harder.”

Safety

安全

10. Is it hard for your company to keep up with the safety requirements imposed by the MNEs? With safety requirements I refer to clearly marked emergency exits, fire extinguishers and first aid equipment.

10. 于夸国贸易公司的安全措施要求,你是否觉得很难遵循? (安全措施要求包括紧急逃生路线的指示的标志，灭火器,及急救箱)

“I think it is easy for us in the management but it is different for the workers. The workers do not know R1 what the best is for them. We provide education and the workers listen but they don’t really care.” “The safety requirements are not a problem for us.”

“These requirements are only basic and they are not a big problem for us, especially since our factory R3 is built according to CSR standards.” ”Some of them are hard to meet. I guess that the hardest part is that we have problems with garments blocking the fire extinguishers. It is not expensive for us to invest in everything necessary but to R4 manage so many people and make sure that they comply with the standards is really hard.” “Safety is something very important to us. We have been working with this for 10 years so this is not R5 hard for us anymore.”

11. Does your company consider the investment in safety equipment as a big expense?

11. 贵公司是否认为安全措施费用是一项很大的费用?

“To meet the safety requirements is not costly to us. We provide education but the workers don’t seem R1 to care.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “The required safety equipment was installed when we built the factory here in Dongguan so the cost is R2 already included. This is not a big expense for us.” “The expense related to the safety requirements is not affecting the production price. This was only a R3 thing we paid once. The management is the hardest part.” “The small things are no problem but if we rent a factory here in China the building has never got enough safety equipment to meet the standards from the MNEs. So yes this expenditure can be pretty R4 significant.” “I don’t think the safety requirements are costly. If we wouldn’t invest in it our costs would probably be R5 even higher. Safety is important to us we have a fire drill two times a year.”

12. Do the MNEs provide help or compensation for the installation of this kind of equipment?

12. 夸国贸易公司有否分担贵公司部份或全部的安全措施费用?

“The MNEs are educating us in the middle management but it is up to us to educate the workers.” “No”

“No, never…”

“Our biggest client provides training. Their program is actually very extensive.” “No.”

13. 贵公司是否希望夸国贸易公司能分担贵公司部份或全部的安全措施费用?

13. Would you like to get help or compensation for this?

“We would appreciate help with this, but only if the MNEs could send someone who truly understands R1 the workers and can talk to them.” “No, we don’t need it.”

“No not really, safety is something that we have to do, it is our duty.”

“I am happy like it is. Of course if I could, I would like to get some compensation for this but I don’t R4 think anyone of my clients would do so.” “No we don’t need it. The requirements are just very basic.”

Factory conditions

工厂环境

14. Is it hard for your company to keep the factory in the condition the MNEs demand?

14. 对于夸国贸易公司要求的工厂环境守则, 贵公司是否感到难于实行?

“It is not hard for us to keep the factory in the condition the MNEs demand, the requirements are just R1 basic.” “To keep the factory in a good condition is not a problem for us.”

“To keep the factory in a good condition is not a big problem. Well when we started to work with CSR we did not understand all the requirements. However, when we moved to Shenzhen and built our new R3 factory CSR was taken into consideration, so we don’t have any problems with this anymore.” “We have a lot of garments lying around. We have about 3000 workers and we have to keep them all R4 in line. This is the hardest part.” “The requirements are easy to understand, like you must not block an emergency exit, but when you have 3000 workers it is all of sudden pretty hard. I am running around like crazy to make the workers R4 understand what they must not do.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 15. 贵公司是否觉得维持守则上工厂环境的费用很大?

15. Does your company consider it as a big expense to keep the factory in the condition the MNEs demand? “No, this is not a big expense for us.”

“Our production is pretty environmentally friendly so this is not a big issue.”

“The most significant cost is the cost for air conditioning but there is nothing we can do about it. When R3 it’s too hot we have to turn it on. This is our responsibility.” “Cost wise no, time wise yes.” “No, I don’t think so.”

16. 夸国贸易公司有否分担贵公司部份或全部相关的费用?

16. Do the MNEs provide help or compensation for this?

“We don’t get any compensation to keep our factory in a good condition. I don’t think we need it.” “No.”

“No.”

17. 贵公司是否希望夸国贸易公司能分担贵公司部份或全部的相关的费用?

17. Would you like to get help or compensation for this?

“If I could get some compensation I would of course be able to do it even better.”

“No I don’t think we need it but we are working with this. We consider replacing our air conditioning system to a more electricity efficient one. We also take into consideration how our workers sit when they work so they can feel the cool air from the air conditioners. It is important to have a good working R3 environment.” “No, I don’t think so.”

“We don’t need it this is not a big expense for us.”

Housing conditions

宿舍状况

18. Is it hard for your company to keep the dormitories in the condition the MNEs demand?

18. 对于夸国贸易公司要求的工人宿舍守则, 贵公司是否感到难于实行?

“We don’t have any dormitories. Our workers take care of their accommodation themselves.”

“Only 80 of our 700 workers live in dormitories, the rest take care of their accommodation themselves. R2 This is not a big problem for us, what the MNEs demand are only basic things.” “We had problems with this before we moved to Shenzhen in 2003. According to the COC the dormitories need to have two emergency exits but we only had one. We tried to put up a ladder but it didn’t work. However, this is not a problem for us anymore. When we built the new factory in Shenzhen R3 we built new dormitories as well.” “We have about 1000 workers living in dormitories. The MNEs require the international minimum standards. We meet that but it is still not a place you would like to live in. For us it is harder to keep up with the competition. In comparison to our competitors our dormitories are in a really bad condition. R4 Our competitors provide air conditioning for instance, we don’t.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “We only have about 100 workers living in dormitories. Many of our workers are already married and R5 live on their own.”

19. Does your company consider it as a big expense to keep the dormitories in the condition the MNEs demand? “This expense is not very big.”

19. 贵公司是否觉得维持守则上工人宿舍的费用很大?

“This is actually a pretty big expense for us. We have a security guard and then we have to pay for R3 cleaning and maintenance but this is already put into the budget.” “I would consider it as a big expense if I had to adjust our standard to the competition but I don’t need to. Here in Guangzhou the workers only care about work. They want a stable order inflow and on time R4 payments that is all they care about.” “The requirements are low. This is not a big expense for us.

20. 夸国贸易公司有否分担贵公司部份或全部相关的费用?

20. Do the MNEs provide help or compensation for this?

“Regarding this we have never ever got compensation.” “No.”

“No.”

21. 贵公司是否希望夸国贸易公司能分担贵公司部份或全部的相关的费用?

21. Would you like to get help or compensation for this?

“The expense is not significant, we don’t need any help with this.”

“We would like to get some compensation for this but we don’t dare to ask.” “No.”

“No.”

Workers’ rights

工人权利

22. What parts of the COC do you find hard to adhere to?

22. 你认为行为准则的哪一个部份难遵守?

“The stipulation dealing with payment and working hours is really hard to meet. The rest of the R1 stipulations are very easy, we never have any violations on them.” “Child labour and safety is not a problem for us. The problem lies with the working hours. The payment R2 for overtime hours is making it hard for us. It is hard for us to plan the overtime when it is like this.” “The only problems we have are the problems with overtime hours and salary payments. It is R3 impossible to fully meet the Chinese labour law stipulations.” “Overtime is the hardest part, overtime and the overtime payments.”

“Safety and environmental standards are easy to meet. The most difficult stipulation is the stipulation R5 dealing with working hours since it is based on the Chinese labour law.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 23. Why are these parts so hard to fulfil?

23. 这个部分为什么会那么难遵守?

“The price is so low right now. We can’t bear the burden of paying extra for the overtime hours. Our clients do only care about the price. If we would pay our workers according to the Chinese law it would R1 be hard to do business.” “Nowadays we have to work more hours to be able to deliver on time. Before most of our clients were looking for a 30 days lead time, now more and more clients are requesting a 25 days lead time. We try R1 to meet that by improving our productivity but also with more overtime.” “Overtime costs 2 to 3 times more than regular working hours. It is hard to do business when you have R1 to pay extra for overtime.” “You can’t run a factory properly under these circumstances. If we would work according to the law R2 there would be no money to make, our production costs would be too high.” “If we didn’t have overtime, it would take us 70 to 80 days to finish an order.”

“We work with fashion. Our clients want to increase their market share. They just can’t wait.”

“This is so hard. If I decrease the pay to my workers they will walk to the next door and if I don’t the R4 buyers will go to Bangladesh.” “There are so many factories out there and no one has got the solution to this problem.”

24. How can you make sure that you can pay your workers on time and to the right amount?

24. 即使你遇上问题，你有什么措施以确保准时支付工人正确金额的工资?

“We keep a lot of cash in this company. We don’t invest in the stock market or in property. My brother R4 has invested a quarter of his life into this company to build a good reputation.” “Before we paid our workers through their bank but they prefer cash. The workers don’t understand how to you use a bankcard. One of our workers put his bankcard and PIN together in his wallet and R5 lost it.” “It is impossible for us to have a fixed date for salary payments. We have 900 workers and since we pay all the workers in cash we have to withdraw an enormous amount from the bank. It would never R5 work.”

Monitoring

监察

25. Do you think the monitoring programs the MNEs use help you to adhere to the COC?

25. 你认为夸国贸易公司的监督系统能否帮助贵公司有效实行行为准则?

“The monitoring program that our biggest client uses really helps us to fulfil the COC.”

“We are very happy with the monitoring program our biggest client has got. Our other clients only come here to audit but this client sets up goals and helps us to set up a system to deal with them. It is really R3 effective.” “I like my biggest clients monitoring program. I meet one of their staff every six months, he is asking me about my progress. I am a factory owner and I am very grateful for this because they listen. We sit R4 down and try to face the problem together.” “I think the common idea is that we need more time. Six months or a year is a very short period if we R4 really want to change something.“ “We don’t mind to set a goal and a goal that is high but we need some leeway.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I think that the monitoring program that our biggest client uses really helps. We have improved a lot on R5 many things. I think they help us to take one step at a time.

Part 3

Questions related to the theoretical conjectures

Chinese labour law and its implementation

中国劳动法及其实施情况

26. Why don’t the Chinese government work harder to make the factories follow the law?

26. 你认为中国政府为什么没有妥善地监管及执行相关的法律?

“China is a big country. We have a lot of people and a lot of enterprises. The Chinese government just R2 don’t have enough resources to implement all the laws.” “The Chinese government is pretty strict regarding criminal law but it doesn’t care so much about civil R2 law violations.” “The labour law was wrong from the very beginning and now they can’t change it. The problem lies R3 with that no one is following it.” “The 36 hour overtime limit might be suitable for IT- and other High-tech-industries but running a R3 factory according to it is very hard.” “The Chinese government is governing a very diverse nation. In Guangzhou all motorcycles were banned because they are dangerous. But in Guangzhou 80% of the population ride motorbikes. Do R4 you think that they really can ban it?” “If the government really would implement the law the buyers would go to Bangladesh and then R4 everybody will loose. I think that the government knows this.” “The Chinese labour law is not suitable for labour intensive industries. China is a big country one law is R5 not enough, it is too complicated.” “The government doesn’t ask us in the industry. The government doesn’t understand our real R5 situation.” “The government doesn’t implement the law. All the requirements that we fulfil come from our clients.” R5

27. Does the Chinese legal system affect the way you are doing business?

27. 中国法制有否影响贵公司的经营方式?

“We have lost the workers trust. We can’t be as aggressive as before, now we have to care more R1 about the workers.” “The Chinese law says that we can give only 36 overtime hours per month but that is almost what I give my workers per week. Sometimes I give them 120 overtime hours per month. I think this is good R2 for us both, they want to make more money and we want to send our orders.” “The new law on employment contracts imposed in 2008 affects us quite a lot. Now the workers on sick leave have right to compensation…many of our workers come to us with fake papers saying that R3 they are sick.” “The Chinese government actually does a lot to make us survive. Especially last year when the RMB R4 rose so rapidly it increased the tax repay. It was incredible it saved me and my company.” “Before one third of our turnover went to the workers, one third paid for the overhead- and material costs. The remaining third was profit. It is different now, after the new labour law was imposed in 2003 we have had to pay extra for the overtime hours. I think it is fair that we pay extra for overtime but it is R5 making it hard for us. Now 50% of our turnover goes to the workers. We don’t have much profit left.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 28. 就你所知, 你的竞争者在经营时有否依序法律?

28. Do your competitors adhere to Chinese law while doing business?

“No, I don’t think so, they are facing what we are facing. It is because of the law so many factories R1 have closed down.” “I think the only reason for our competitors to follow the law is to maintain goodwill. Some big companies in Hong Kong really focus on this to maintain a good reputation. They have their shareholders to think about. I think they are good at following the law but at the same time they R2 outsource and blame the suppliers.” “I have not seen a single factory that doesn’t have longer overtime than 36 hours per month. I don’t R3 think anyone can do it.” “If I could change the law I would change it into a 60-hour-working-week. What the labour law R3 demands is just impossible.” “I think that most people try to follow the law but only a few really do everything.”

“I think that we all work in the same way in this industry. There are probably some companies that totally follow the law but they are not many. The Chinese labour law is not reasonable… everyone R5 would go bankrupt and there would be no food to eat.” “The labour law was wrong from the first day it was imposed. It may work for banks and IT corporations R5 but not for us in this industry.”

29. What do you think about the stipulation on overtime in the Chinese labour law?

29.你对中国劳动法中有关加班的条例有什么意见?

“The stipulation on overtime was wrong from the beginning, it is impossible for anyone running a R3 factory to follow it.” “The western world says that a five-day-working-week is good so we have to adopt it.”

Purchasing Model and CSR cost acceptance

采购模式与企业社会责任费用的接受

30. How many clients have you got?

30. 贵公司有多少个客户?

“We are currently working with 10 clients in total.”

“We work with 8 to 10 clients. Most of our clients are from America and Europe but we are trying to get R2 more domestic clients.” “We have about 10 clients, most of them are from America and Europe.” “We have three clients today.”

“We have 12 clients in total 7 of them are from America and Europe.”

31. Why do you choose to work with international clients?

31. 为什么贵公司选择欧美国际公司作主要的客户?

“It would be a lot easier to work with only domestic clients but we make more money on the products that we sell overseas. It is important for us to have a lot of international clients to learn about the new R2 styles from the west.” “Our international clients pay us 5-10% more than our domestic clients.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “The demand is so big from overseas.”

“There are several reasons why we only work with international clients; you get a sizeable order, they R4 pay on time and you can trust them.” “We have always been working with international clients. We prefer to do business with them. Their requirements are often more strict but their orders are on the other hand big. To do business with domestic clients can sometimes be tricky. Most domestic clients have a relationship with the local R5 government and we don’t want that. There is always a risk in China that you will get deceived.”

32. 贵公司为什么选择中资公司作客户?

32. Why do you choose to work with domestic clients?

“We have a few pretty small domestic clients. We want to help them, China is a big market.”

“I don’t work with domestic clients because they don’t pay. I don’t understand how any of my friends R4 bear to work with them.” “The local clients demand that you finance their business and if you have to finance them how are you R4 going to be able to pay your workers.” “We work with a few trade intermediaries in Hong Kong but we don’t work with any local brand names.” R5

33. 贵公司最大的客户的订单占贵公司的订单产量百分比是多少?

33. How big is your biggest client in terms of factory output?

“Our biggest client has got 25-50% of our output. It depends on the seasonal demand.” “Our biggest client has got 35% of our factory output.”

“Our biggest client has got 70% of our factory output. We don’t have any bargaining power anymore. If they would stop placing orders with us we would have nowhere to go. All the MNEs work like this. First they give you a few small orders, and then as the relationship becomes better they give you more and more. In the end it is not only about the products we produce, they want a tailor made package. Now we don’t have a choice but to totally adjust to the demands from our biggest client. If they would stop R3 placing orders with us we would have to close down that is for sure.” “Our biggest client has got about 80% of our output. We have been doing business with this client for 25 years. This client literally came up to my cousin 25 years ago and asked him if he could put up a R4 factory. Back then they had 100% of our output but I am trying to reverse the trend.” “Our biggest client has got 70-80% of our production capacity.”

34. 贵公司第二大的客户的订单占贵公司的订单产量百分比是多少?

34. How big is your second biggest client in terms of factory output?

“Our second biggest client has got 20-25% of our output. The rest have about 5-10% each.”

“Our second biggest client has got 18% of our output. The rest of our clients are very small.”

“Our second biggest client has got 30% of our output. The rest of our clients have something between R2 5% and 15% each.” “Our second biggest client has got about 20% of our output.”

“Our second biggest client has got about 20-30% of our output, it depends on the season. The rest of R5 our clients are all very small and the orders come occasionally.”

35. 对于贵公司的客户而言,曾遵守行为准则的占全部客户百分比是多少?

35. How many percent of your clients have a COC? “At present about 80% of our clients have a COC.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “All our international clients have a COC. The COCs look all the same to me, just basic legal requirements. The stipulation about child labour is always the same. Well some more detailed parts R2 can have small differences.” “Nowadays all of our clients have a COC. We only do business with clients with their own brand names R3 and they are not willing to take risks.” “They all say that they have a COC but only a few really do something.” “All our clients have a COC.”

36. How many percent of your clients have a COC and a monitoring program?

36. 对于贵公司的客户而言，能与夸国贸易公司一样有遵守行为准则及监督系统的客户占全部客户百分多少?

“About 80% of our clients with a COC a have monitoring program.”

“About 80% of our international clients have a monitoring program. Even our small clients have got one R2 but our small clients only come and audit us once and then they are happy.” “Only the clients with offices in China care about monitoring, 50% of our clients use a third party for R2 auditing.” All our clients have monitoring programs. The difference is that some of our clients use a third party for R3 auditing. “Only one of our clients takes monitoring seriously.”

“Only our biggest client has got a really good monitoring program. They send a lot of people to our R5 factory, at least once a season. I think we are pretty important to them.”

37. What is the most important to your clients in general?

37. 对于贵公司的客户而言，以下哪一项是最重要的?

Price Lead time Product quality CSR

成本交货周期产品质量企业社会责任

“In general, price and quality are more important to our clients but some clients think that CSR is R1 important too.” “Price is what is most important to our clients, after price the lead time is the most important. Then R2 maybe CSR and product quality.” “It is hard for us to say what is the most important. We have to meet all the demands at the same time. R3 The problem is that they all affect our production price.” “Price is very important to our clients but it is not only about price, the lead time is also very important. I R4 think that most clients don’t consider CSR as something important.” “CSR is important to us. We have to pass the requirements and then they start placing orders.”

38. How many percent of your clients think that CSR is the most important?

38. 对于贵公司的客户而言，同意企业社会责任是最重要的客户所占的百分比是多少?

“Only one of our clients thinks that CSR is really important, I would say 10%.”

“CSR is just like a threshold, either you meet the demands or you are not in the game.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I wouldn’t say that my clients think that CSR is a high priority. Well, my biggest client thinks that CSR is a pretty important. Among my clients they take it very seriously. They check my papers and if I already have too many orders they won’t give me more work because it would lead to more overtime. R4 Our biggest client is the only one that would do so. I am actually really proud of them.”

39. Is it hard for you to meet the demands regarding CSR when other things are more important to your clients?

39. 如果贵公司的客户认为其他因素比企业社会责任还要重要，这会否造成贵公司在实行社会责任上出现困难?

“We are under a lot of pressure. On the one hand we have to keep our prices competitive to get R1 orders, on the other hand we have to pay our workers properly.” “The COC is making it hard for us. The COC increases our costs and lower our profit. The prices that R2 we get from our clients are about the same no matter if we follow the COC or not.” “You can have the best CSR company in the world but you would not sell, and then everyone is out of R4 business…CSR is a very long term thing.” “If it is hard to meet CSR when other things are more important? The answer is yes. If something else R4 is more important it is always hard to meet other demands.”

40. Are your clients making it easy for you to meet COC demands?

40. 就贵公司而言, 采购公司的措施能否令贵公司更容易达到行为准则的要求?

“I think it is easy to meet everything in the COCs but salary payments and working hours. The buyers pay too little for our goods. Even though the minimum wage is higher here than in the northern part of the country the buyers still want the cheapest price possible. It is impossible for us to give such a low R1 price when we have to consider CSR demands.” “Usually, we let our workers have the Sunday off. During the high season we can’t, we have to meet R2 the deadline.” Researcher: “Do they have to work overtime as well?” “Yes, of course. Sometimes we can’t let them have a day off for 3 months. We have no choice but to R2 let them work overtime everyday.” “It is not hard for us to plan how many days or workers we need to fulfil an order. We always calculate how much time we need to produce one piece and then we just multiply it by the quantity ordered. Still R3 it would be impossible for us to meet the lead times without overtime.” “We only have one big client and we would be able to do much more if they were willing to pay for it. Price is still what is most important. We can’t raise our production price because this is an international R3 business, the competition is so intense.” “If we would completely follow the COC our production price would be much higher. The competition is R3 so intense right now, it is impossible to do it.” “The lead time is a big problem for us. Our European clients are used to the short lead times from Turkey. There is a trade off between cost and lead time. I hope that our European clients someday will R3 understand the reality.” “The competition between the biggest fashion companies is so intense. When one company launches a new collection the others do everything they can to catch up. Sometimes they just give us an order R4 and say, just do it as fast as you can.” “They help us but it is very hard to meet all the stipulations.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 41. 实施企业社会责任会如何影响贵公司的成本?

41. How much does CSR affect the production price of your products?

“CSR affects our production price with 15% at least. Overtime costs us so much, we have 2000 R1 workers it is a tremendous amount.” “The COC has many parts that affect our production cost, especially the stipulation dealing with overtime. At night we have to increase the workers pay with 50%, on the weekends with 100% and on R2 public holidays with 300%. This is a big expense for us.” “Our CSR work affects our production cost with about 15%. It would be impossible for us to totally R3 meet the demands. I don’t think that there is a single factory out there that does it.” “We have to consider so many things. Everything costs. If we would have to cut on overtime we would have to hire more workers, meaning more dormitories and higher insurance premiums. It would R5 increase our costs even more.”

42. Does this price increase affect your ability to sell to others clients who only focus on price?

42. 对于只重视成本的客户, 他们会否接受因实施企业社会责任而影响成本上升?

“If we didn’t have to pay for CSR we would be a lot more competitive.”

“Some of our clients think it is OK with a price increase but our small and local clients really don’t R2 understand CSR work. They only look for the lowest price possible.” “At present only 5% of our clients are domestic. Our goal is to have 15% of our clients from China. China is a big market with a great potential. It is easy to do business with the Chinese because they don’t care about the quality. It is very easy to meet their demands. We hope that we can find and work R2 for a big local client it would make everything so much easier for us.” “Only 50% of our clients from America and Europe think that it is OK that we raise our price because of R2 CSR.” “One of our clients told me once that he finds it hard to understand what our real price is. He said: Before I paid you RMB 10 per piece. Then I paid you RMB 9 per piece and that was no problem. Now I pay you RMB 8 per piece and that is no problem either. I wonder if I would pay RMB 6 would it work, I R3 don’t know.” “Don’t even talk about a 5% price increase they don’t even want to pay you one extra penny. The MNEs have sourcing companies all over the world. If China is too expensive, Bangladesh is there, if R4 Bangladesh is too expensive India is there. They have choices.”

43. Do the MNEs provide compensation for your CSR work?

43. 夸国贸易公司会否支付部份或全部的企业社会责任费用?

“None of our clients provides compensation for our CSR work. I would really like to get some compensation for this but I don’t think it is possible. I don’t understand, they want a really low price and a short lead time and then the auditors show up to inspect our factory. Why don’t the CSR and R1 production departments communicate so they can compensate us for our CSR work. “No, but I would like to get some compensation for this.” “No, but they provide other things like training.”

“No one of my clients compensates us for our CSR work, but they compensate us in another way. If we R4 do a good job they continue to place orders with us so that is a kind of compensation.” “Our biggest client always tries to consider our overtime and the cost increase it implies.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry

Other suppliers – the competition

其他供应商 - 竞争

44. How common is it to work with CSR in your industry?

44. 就你所知, 企业社会责任是否在行内被广泛推行?

“Everyone works with CSR nowadays. I don’t know about the small factories but all the medium sized R1 and big factories seem to work with it.” “All suppliers that sell overseas work with CSR today, but the suppliers that provide the domestic R2 market don’t care.” “If we talk about international clients almost everyone works with CSR nowadays, but among the R3 domestic clients CSR is not very common.” “All the factories say that they work with CSR but in reality I don’t think many actually do.”

“Some factories really put an effort into CSR work. The other factories only do it because it is a must.” R3

“Everybody knows about CSR today but it is really hard to implement it.”

“Everyone who works with international clients work with CSR but the standard differs. Some of the R5 clients from the United States have very high requirements.”

45. Is it hard to get orders in your industry?

45. 在你的行业,要获取新的订单是否很困难?

“It is hard for us to get new orders, the competition is so intense. Our clients don’t only come to us they go to many factories. One factory might offer them RMB 8 per piece another one RMB 10 per piece R2 that is how it works.” “There are so many different demands that we have to meet. Now I have one big client and therefore I R3 can give them special service. I would not be able to give this kind of service to my other clients.” “Orders are hard to get. The MNEs have so many choices. We compete globally. I have been running this factory for six years. It is not only about the product, I have to provide a service company. Price, R4 lead time, quality and CSR are only basic requirements otherwise you are not even on the table.” “It is getting harder and harder to get orders in this industry. The price war is getting more and more R5 intense…with the new Chinese labour law it is hard to do business.

46. How do you attract clients and get orders in your industry?

46.有什么因素导致新客户选择贵公司?

“Price and product range are most important to our clients. In our factory we can do everything from R1 sleep wear and casual wear to functional wear, not like other factories with only one product series.” “The buyers come and look at the factory size, they want a big factory. They don’t trust the small R1 factories. Price is of course very important.” “What’s most important to us is to keep the production costs low. Secondly we have to be able to provide short lead times. Quality is also important but if the price is high they won’t even come to our R2 factory.” “Scale is very important to our clients. Our clients want a low production price but it is also important R3 that we show them that we have control over the production process.” “Not a single client would like to work with a small factory. Our clients rather work with one factory with 3000 workers than 10 factories with 300 workers each. It is costly for our clients to deal with many R3 factories, that is why they just want to deal with one big factory.” “Price is very important to our clients but if they give us a price that is too low, we have no chance to R3 meet it.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I am fast and to a reasonable price. Some of my competitors are faster but they are more expensive.” R4

“If you increase the price they won’t place as many orders with you, it is that simple.”

“It is very important to be able to offer a good price. We do business, profit is important. Quality and scale is also very important. We have a big factory and the latest equipment, our customers like that.” R5

47. What do your competitors do to attract orders?

47. 就你所知,你的竞争者是如何吸引客户?

“Our competitors only think about the price and the lead time.”

“Our competitors work in the same way, they try to keep their costs low.” “It is obvious that our competitors only focus on price.”

“I did some research and our production price is somewhat higher than our competitors’ prices. I am R3 afraid that our clients will go elsewhere. I do everything I can to meet their demands.” “Our competitors only compete with price, lead time and product quality. CSR is just a basic R4 requirement if you don’t meet it you are not even in the game.” “You have to position yourself either you are faster or you are cheaper.”

“We are all in the same industry. Once we have met the requirements from CSR we all try to attract R5 orders with a low price and high quality.”

48. What do you do to lower your own production costs?

48. 贵公司是如何减低生产成本?

“We try to increase the productivity by using new kind of sewing equipment… sometimes we come up R1 with new ideas and then we try to implement them.” “We try to educate our workers to work faster. We also try to put most of the overtime hours on R2 weekdays to keep the costs down.” “We try to make our workers understand the importance of keeping the costs down. We tell them to R2 switch of the lights when they leave a room.” “We try to keep our stock level as low as possible. We try to change the work flow to make the workers work faster. We also do some development work, like when our clients ask us to produce something we also come with suggestions like that we could produce the very same thing but with another R3 material in order to lower the production price.” “Electricity consumption is a big issue. We try to find green alternatives to lower our consumption.”

“On the one hand the prices from our suppliers are increasing, on the other hand the prices that we get from our clients are dropping. The only way to deal with this is economies of scale we have to spread R4 our overhead costs.” “We have changed the production management. Before we let the workers finish the pieces themselves. Now we just let the workers sew one part of the garment. In this way they push each other to work faster. This is something we started with this year and it has turned out very well. This new R5 management has increased our productivity with over 10%.” “We have a big blackboard where we write how many pieces each production group produces, it works R5 really well. It makes our workers work faster.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry

Subcontractors

转包商

49. When you order products from your subcontractors do you always get them on time and to the agreed price?

49. 贵公司向转包商订购的货, 是否经常准时收货及合乎之前约定的价钱?

“Only 60% of our ordered fabrics arrive on time, the remaining 40% come late or with quality issues. Sometimes our suppliers even change the price after we have placed the order. We try to negotiate but R1 it always ends up with us paying more.” “We usually get the ordered fabrics on time. The price is not a big problem it is always according to the R2 contract. Our costs don’t fluctuate so much.” “The price is not a big problem but our ordered fabrics often arrive late. Almost 30% of our ordered R3 fabrics arrive late.” “We seldom get the needed material on time but luckily we get it to the agreed price. I have never made a summary on it. We always require the products earlier than we actually need them so the ones R4 that are actually late are only a handful.” “We get most of our ordered goods on time. When we don’t get it on time we usually have to wait for another two to three days. If it arrives late we work more overtime, we don’t want to send our orders by R5 air.”

50. Is it hard for you to predict the delivery times from your subcontractors?

50. 是否很难估计何时收到从转包商订购的原材料?

“80% of our material arrives on time. It usually takes a week to get the fabrics that are late.”

“This is hard, when we plan and place the order everything is clear but in reality it doesn’t work like R3 that.” “When the material is late it takes us another 5-7 days to get it.”

“For the ones that we work closely with I would say that I know their delivery time by now. But it differs a lot form season to season. I work with YKK and boom they have to deliver 15 million zippers in a R4 day. Can I predict that? No, then we go overtime I have no choice.”

51. Do your costs fluctuate a lot?

51. 会否面对大波动的原材料费用?

“Our costs are quite stable at the moment. In general the question is not about the price, but the R1 delivery time.” “We have small fluctuations in the fabrics cost, about 5%.”

“Our costs don’t fluctuate much. When we have signed the contract we always pay according to it. The R3 problem lies with that some of our suppliers demand us to pay in advance.” “Our costs don’t fluctuate. They just keep on increasing. The fashion industry is like this. Almost all the jeans look different because the customers think that it is boring to look the same all the time. Price R4 negotiation is really hard since our orders never meet the standards.” “Our biggest client only discuss the price with us once a season, we also tell that to our suppliers. But last year when the RMB rose so rapidly many of my friends lost so much money. They didn’t even R4 have enough money to pay their bills.” “No I wouldn’t say so, when you have signed the contract the price doesn’t change.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 52. If you cannot get the products you have ordered on time do you have the possibility to delay your delivery to your client? What happens if you cannot deliver on time?

52. 如果贵公司未能按时收到原材料因而令生产延误, 你可否推迟你的交货日期? 如未能准时交贷, 会为贵公司带来什么后果?

“If we can’t deliver on time we usually discuss it with our clients. If we can’t send the order on time we have to pay a penalty or the air fee. With the margin right now it is impossible for us to pay this so we R1 never want to have a late delivery.” “Only a small percentage of our clients can accept that we postpone our delivery. If we can’t deliver on time we have to send it by air and then we don’t have any profit left. But we rather send it by air than R2 pay a penalty. We want to keep a good relationship with our clients.” “If we can’t deliver on time we try to negotiate but it is very rare that we get our will through.”

“We can’t have late deliveries. They would “downgrade” us which means that we will get fewer orders R3 in the future.” “I can’t say that I have to delay the delivery because they don’t care, their marketing campaign has R4 already started.” “Any hiccup in the production process and it is going to be overtime.”

“If I tell my clients that I need to change suppliers to get the material on time, they would say: Can you please send us a sample to see if the colour matches. In the end we have no choice but to go R4 overtime.” “We try to discuss with the buyer but some of the orders are so called campaign orders and they can’t R4 be delayed.” “If everything fails I will have to send the orders by air. I will not let that happen. Last year we delivered R4 6 million pieces in total and I only sent 6000 pieces by air. It was on my account.” “In more than 90% of the cases we can’t do anything. If we can’t finish the whole order on time we will have to send what ever we have finished. The rest of the order is cancelled. Another option is to send it by air but if we do that they will “downgrade” us which means that we will get fewer orders in the R5 future. We try to avoid that.”

53. If you cannot get your ordered products to the price you first agreed on do you have the possibility to raise your price to your clients? What happens if you cannot deliver at the price you first agreed on?

53. 如果贵公司未能按照之前的约定的价钱订购原材料,你可否向客户要求提高出售价钱? 如未能按照与客户约定的价钱出售制成品,会为贵公司带来什么后果?

“Once the order is confirmed, it is confirmed. Unless the client makes some changes to the design or R1 style the price is fixed no matter if our costs rise.” “This can’t happen. We always seek our suppliers for a quotation before we give our price to our R2 clients. This is not a problem for us.” “This is not a problem for us.”

“We try to reason with the merchandiser but it never works. In this market you offer a price and that is R4 the price. It is a contract based world, we have to stick to the contract.” “The possibility of changing the price after the contract is signed is very small. It might happen if our R5 costs have increased significantly but I wouldn’t count on it.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 54. Are your subcontractors making it hard for you to meet the demands from the MNEs?

54. 原材料供应商的行为会否令贵公司达到夸国贸易公司的行为守则的要求带来困难?

“Our suppliers are not a big problem for us but none of them care about CSR. Well, a few do but that is only because they have their own brand or because they sell to clients overseas. They want to keep a R2 good reputation.” “Our suppliers make it hard for us because 30% of our ordered goods arrive late. Our biggest client doesn’t allow us to delay our delivery. We have no choice but to work overtime to meet their dead R3 lines.” “Yes, so I try to do more and more myself. For instance I dye my own thread. Every time I have a R4 problem I try to do it myself.” “Every time I have done something to improve the lead time the MNEs come back to me and say: Oh now you have done all this you should be cheaper. Then I say: I didn’t do this to make money I did it to R4 improve the lead time for you.” “No I don’t think so. If something happens we just increase the overtime.”

The factory workers

工厂工人

55. How many workers have you got in your factory?

55. 贵工厂有多少名工人?

“We have 2000 workers in our factory”

“We have about 700 workers here in China. Three years ago we had 1600 workers. It is so expensive R2 here in China nowadays. Now we have put up two factories in Cambodia with 3000 workers.” “We have our head office in China, the quality of the products is better here. What we produce in R2 Cambodia is really simple stuff.” “We want to move more of our production abroad. Thailand and Vietnam are not cheap anymore. Laos R2 and India are where we want to go next.” “We have 1300 full time workers in our factory. When we moved here in 2003 we had 700 workers.”

“I have 3000 workers today. We have grown rapidly. Six years ago we had 1000 workers. We want to R4 continue to expand.” “We had about 300 workers when we started. Now we have about 900 workers. I think we will expand R5 even more in the future it depends on the orders.”

56. How many percent of your workers are migrant workers from the Chinese countryside?

56. 就贵公司而言,本地工人和外省工人的百分比是多少?

“Almost 90% of our workers come from the Chinese countryside. The workers are mostly from R1 Sichuan, Hunan and the Jiangxi province.” “In the south we have higher minimum wages than in the north that is why they come to us.”

“90% of our workers come from Sichuan and the Guangxi province. They are so poor over there so R2 they come to us to find work.” “All our workers come from Sichuan, Hunan and Jiangxi.”

“40% of my workers are migrant workers, the rest are locals.”

“70-80% of our workers come from the countryside. Most of them come from Jiangxi, Sichuan, Hunan R5 and Guangxi.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “The workers from the countryside work harder. They want to make more money.”

57. How long does a factory worker stay at your factory and work in average?

57. 就你所知,每名工人平均会留在贵公司工作多少年?

“Most of our workers stay with us for about five years. Some workers leave and go home, some workers dislike our complicated style and go to other factories. The workers want something that is R1 easy to sew since they are paid based on piece rate.” “Our workers stay and work for us for about two years, then they go home or to some other factory it R2 depends on their age.” “It depends on their age but most workers stay and work for us for about three years. Then most workers go back home. Especially women that have not yet found a husband leave. It is very important that they find a man. This is not a problem for the men. Within this business most workers are women R3 so the men have many women to choose from.” “I like the local workers. Many of them have been here for five years already. The migrant workers stay R4 shorter about two to three years.” “We like the local workers because we know that they will come back after the Chinese New Year. After the Chinese New Year there is always a big question mark, we never know how many workers R4 that will come back.” “30-40% of our workers stays here and works for less than two years.”

58. If you had the possibility to increase the factory workers’ salary do you think they would stay longer or shorter?

58. 如果工人的薪金被提升, 你认为工人会留在工厂的时间是更长还是更短?

“If I could pay my workers more I think they would stay longer. However, the workers still think about the style, they want something that is easy to sew so that they can make as many pieces as possible.” R1

“No, I don’t think so but if I could offer a higher salary it would be easier for me to find new workers.” “I’m not sure. What is most important is not the amount I give them but that they feel treated fairly.”

“I can’t give preferential treatment to any of my workers. If I would give a raise to one of my workers R3 the rest of the workers would come to me the next day to ask for a raise as well.” “In China production is piece based. The workers don’t care so much about the amount they get per piece, they care more about how much work they can get. I have a lot of work for my workers so I can R4 press my piece rate a little bit lower than the average on the market.” “I don’t think the workers would stay longer even if I raised the salary. In the textile industry the R5 threshold is very low, people come but they also leave very easily.” “The migrant workers don’t care much about the salary. They are so happy that they have found a job R5 and that they are able to stay in this city.” “Other things are also important to the workers. This factory is very big they feel safe working here.”

59. What is the average worker’s attitude towards overtime?

59. 就你所知, 工人对于超时工作有什么看法?

“The workers need overtime and they don’t really mind to work overtime. The migrant workers from the north think that overtime is necessary. If I only let them work till five o’clock they think that they don’t have anything to do. They think it is a waste of their time to go home. Most workers want to work to R1 nine or ten in the evening otherwise they don’t think we have enough work for them to do.” “The workers don’t mind to work overtime. If I can give them more work they are happy, it means that R2 they will make more money.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I don’t think the workers want to work more than 11 hours per day. But if I don’t give them overtime they think they earn too little. If I would be able to give them RMB 2000 for regular hours I don’t think R3 that they would want to work overtime.” “I made some research, most of my workers want one day off per week and they are happy if they R3 don’t need to work more than 11 hours per day.” “We hope that we would be able to control it so that the workers would only need to work between 9 R3 o’clock in the morning and 9:30 at night.” “People born in the 80s are happy with RMB 2000. I made some research, the younger workers use 90% of their income themselves. The rest of their income they give to their family. It is different for the R3 older workers they give about 80% of their income to their family so they want to work more.” “The older workers want to earn more. They have a family to support.”

“The workers want overtime. The workers know that the peak season is the season when they can R4 earn the most money. If I don’t give them enough overtime they will leave immediately.” “I know a factory in Shenzhen that is completely in compliance with the COC. They work five days a R4 week eight hours a day and the workers get RMB 800 per month but are they happy? I don’t know.” “The workers who come to me know that this is a garment factory and that we will have overtime but at R4 the same time I will be able to give them RMB 1600 per month.” “I don’t think many factories practice 1.5 and 2 for overtime hours.”

“Our workers want to work. If we don’t give them overtime they will not accept it. But too much R5 overtime is not good either.” “Our workers accept something between 120-130 overtime hours per month, but 140-150 overtime R5 hours are also OK.” “Our workers like overtime, overtime means that they can make more money. If we don’t give them R5 overtime they don’t have anything to do and they will have to spend their money.” “Especially workers with families work hard.”

“Too much rest is not good, they are not used to it. If they go home they don’t know what to do.”

60. How do you attract workers to come and work for you in your factory?

60. 贵公司如何吸引新工人入职?

“It is pretty easy for us to attract workers during the peak season when we have a lot of work to do. Stability and a lot of work are what attract the workers the most. During the low season it is hard for us R1 to attract workers.” “I think that our factory is better than many other factories. We have air conditioning and sometimes we host parties for our workers. It is hard to find workers now so we have to think of new ways to attract R2 them to come and work for us.” “Our workers tell their friends about us. We don’t have to do anything, we have a good reputation.”

“I have a lot of work for my workers. I am famous in this whole area, if you come to my factory I have a R4 lot for you to do. And I always pay my workers on time. The workers know this and they like it.” “The workers believe that a factory that has a lot of overtime and that pays on time is a good factory.” R4

“If you compare our factory to the small sweatshops on the streets we have a lot. We have a big R5 factory we can provide a good environment for our workers.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 61. How long does it take for you to find and recruit new workers?

61. 贵公司需多长时间招募新工人?

“It is getting harder for us to find and recruit new workers due to the new government policy. It would take us about three to four weeks to get 100 new workers under normal circumstances. During the R1 peak season before New Years it is impossible.” “It would take us a week to find and recruit ten new workers. We use adverts on the street and some R2 recruitment agencies.” “It doesn’t take long for us to recruit new workers. We need three days to get 10 new workers. If we R3 would need 50 new workers it would take about a month.” “I am trying to set up a HR department. Now we use some agencies but they are bonding the workers because they pay their train tickets and then they force the workers to pay it back, which means that R4 this is forced labour.” “Predominately I let my supervisors take care of the recruitment. I have 3000 workers and 60 supervisors in charge of 50 workers each. The supervisors call their villages to get new workers. Sometimes they can really make a mess like when they have called some of their friends’ daughters. And even if they are very young they can say; if you don’t hire these people I am leaving. We are afraid of the supervisors leaving because if a supervisor leaves he might as well take the whole group with R4 him.” “As a result of the financial crises many factories went bankrupt. During that time it was pretty easy to find new workers. Now it is getting stabilized. It would take us a couple of days to get ten new workers R5 and about a week to get 50.” “At this time of the year it is almost impossible to find new workers.”

62. How long does it take to train a new worker to do his/her tasks in the factory?

62. 贵公司需多长时间来培训每名新工人?

“We don’t hire new hands. We only employ experienced workers. We always test their skills before R1 employment.” “We usually train our workers for a day before they start working.”

“When they start working their productivity is quite low, only 70% of a regular worker. It takes about a R2 month for them to catch up.” “The training is divided into two parts. The first part is just basic training to make them familiar with the factory and the production process. We usually provide half a day for that. The second part involves training to increase their efficiency. New workers usually need half a month of training to be able to meet the minimum wage. If they don’t meet with the working speed needed to reach the statutory minimum wage we have to fire them. For a new hand it takes about three months of work to reach the R3 average productivity level in the factory.” “It depends on the workers, if they are willing to learn or not. In average they need two months of training. I don’t provide a training program I just put them in production. They are going to be less R4 productive for the first two months and then they will catch up. This is the easiest way for me.” “20% of our workers are new hands when they come here. We like new hands because they are easier R5 to train.”

63. How much monthly salary is the average factory worker looking for?

63. 就你所知, 工人要求的平均薪酬是多少?

“The average factory worker looks for RMB 3000 per month”

“The more the better, RMB 10 000. Now I give my workers RMB 1600. If I could give them RMB 2500 R2 to 3000 they would be very happy.” “Most of our workers are looking for something between RMB 2000 and RMB 2200.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I don’t know, over RMB 1000 at least. I have a lot of workers that make more than RMB 5000 per R4 month.” “The merchandisers make RMB 1800 per month and they speak English fluently. The workers may R4 make as much as RMB 5000 per month.” “I am so happy if one of my workers makes RMB 5000 it means that I am making RMB 5000 as well. R4 This is just how it is, everyone is just trying to do their best to make a living.” “The workers are so afraid that if they don’t finish of what they do the worker next to them will so they R4 always think it is better to do it right away.” “It would be very hard to pay the workers by the hour or in a lump sum. The monitoring cost would be so high. With piece rate the workers monitor themselves. But piece rate has a down side and that is R4 that the quality is infringed. The MNEs told me that and I am trying to improve.” “The more the better. The more experienced workers have somewhat higher demands. The new R5 hands are just happy that they have found a job.” “The workers with a couple of years of experience look for something between RMB 1500-2000. R5 During the high season they make more than RMB 3000.”

64. If you would be able to give your workers their ideal salary without overtime, do you think they still would be interested in working overtime to make even more money?

64. 如工人能赚取他们理想的工资, 他们会否要求超时工作以获取更多工资?

“The workers always want to make more money. They come to me and say: Why can’t you give me R2 more things to do?” “Yes I think they would, but if we forced them to work 13 hours per day they would complain.”

“People born during the 90s don’t look for money anymore. They just want a job. If they make R4 RMB 1000 they are happy.” “We have two types of workers. Some workers just want to make RMB 1000 and some are pushing for RMB 3000. This is a big problem because every worker does only sew one part of the garment produced. So if a guy up streams all of a sudden stops the other workers down streams will get angry R4 and say: I want more work to do.” “If I would be able to give my workers RMB 2000 for 8 hours a day they would still want to work more. If there is time there is an opportunity to make money. They don’t need so much money but they want R5 to save for the future.” “The younger workers are different. They don’t save so much, they like to go to internet cafés and buy R5 things like clothes.”

65. How many hours per day do you think the average worker wants to work?

65. 你认为工人期望的每日工时是多少?

“I think that most workers want to work 10 to 11 hours a day. At my factory they start working at eight, have lunch from twelve to half past one, then they work till five thirty. At seven they come back for R1 overtime. They feel happy if they can work to nine or ten in the evening.“ “I think that most workers want to work 11-12 hours a day. If I can give them a lot of overtime they will make RMB 1600 per month. If I give them regular working hours they will only make RMB 700-800 per R2 month. If I can’t give them enough overtime they will leave and go to other factories.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry “I think the average worker wants to work 10 to 11 hours per day.”

“Some workers really count the amount of pieces that they produce and they won’t stop till they have hit that amount. Some other workers just want to come here and work for 8 hours a day. They come R4 here because we have free lunch and lodging. These workers I fire immediately I don’t want them.” “During the low season I try to implement a five day working week but the workers don’t accept it. I try R4 to look the door but they want more work.” “A six day working week may be accepted but it is hard. Spare time means time for them to spend their R4 money and they are not here to spend money they are here to make money.” “People who come to my factory work hard. They want to build a house for their family and get R4 married.” “It is the same for me I am stuck at this factory seven days a week. I just want to make money so I stay R4 here and work. When I have time I fly to Shanghai to see my wife.” “I try to give the workers more entertainment. I show them movies on a projector. I have been doing R4 this for the last few months but they are just not interested.” “Our workers work 12 hours a day and have every Sunday off. 36 hours of overtime is not enough.” “It is hard for us to control the overtime hours.”

66. Do you have any factory workers that are employed by another firm at the same time in order to make extra money?

66. 就你所知, 是否有工人受雇于另一家公司?

“I think 2% to 3% of our workers even go to other factories to earn even more money. They are not R1 allowed to but with no evidence I can’t catch them.” “We try to regulate this but it is impossible for us to see if the workers go to other factories when they R2 are off work. It is pretty common in the industry that factories employ part time workers.” “No I don’t think so. If we can’t give them enough work our competitors won’t be able to give them work R3 either.” “We don’t allow it. There are not many factories left in this area. I can’t control it but I guess that most R4 of the workers are here already. My brother knows the other factory owners, they hang out.” “No, they have so much to do in our factory. They would not have time for another job.”

67. What do your factory workers do in their spare time?

67. 就你所知, 工人在业余时间有何消遣?

“I don’t know what they do in their spare time. Probably they just hang at home or spend time with their R1 friends.” “I don’t know what they do when they are not here. They probably watch TV or hang out with their R2 friends.” “Many of our younger workers like to go to internet cafés. Our older workers watch TV and chat with R3 their work-mates.” “Most of our workers never leave this area.”

“At this time of the year my workers have to work 14 hours a day excluding the lunch hour so they R4 don’t have much spare time. I am trying to give them a movie night but they are not interested.” “The younger workers buy food and go to internet cafés. They don’t go to the movies it is too R5 expensive, even I can’t afford it. Some of our older workers like to play mah-jong.”

INTERVIEW GUIDE

Barriers to code of conduct compliance within the Chinese apparel industry 68. Would it be hard for you to find workers who are willing to accept a pay lower than the statutory minimum wage?

68. 就你所知, 会否有工人愿意接受低于法定的最低工资?

“This is not easy. Some inexperienced workers might be willing to accept an even lower pay. I don’t R2 know.” “The statutory minimum wage is about RMB 900. If they work 36 overtime hours per month they must be able to make this amount. We provide 15 days of training to make sure that they are able to make R3 at least RMB 900 within the overtime limit.” “We don’t hire workers based on the minimum wage. We base the payment on piece rate. For the first three months we have a safety net if they don’t reach the amount needed to reach the minimum wage.” R4

“In Guangzhou the minimum wage is RMB 860 even though many of the factory owners opposed it. The government tried to increase the minimum wage here in Panyu but our factory owner opposed it R5 so now we pay RMB 770. It is enough our workers don’t have many expenses.”

Part 4