In the past, you’ve read about my take on factory life in China, but BusinessWeek recently released an article about corruption in the factories of China. If you have any interest in globalization, manufacturing, China, or American consumerism I strongly suggest reading the article, but just so you aren’t reading alone, I’ve commented on some of what I consider the more relevant thoughts from the article. Before I get started, I’d like to point out that the article is very accurate about life in the factories, and while many companies who participate in Chinese manufacturing believe things are getting better, there is relatively little improvement in adherence to labour regulations. In my many visits to factories throughout South China, I have yet to enter a factory where I did not smell strong paint or gas fumes or where employees were using some sort of protective garment.
“For more than a decade, major American retailers and name brands have answered accusations that they exploit ’sweatshop’ labor with elaborate codes of conduct and on-site monitoring. But in China many factories have just gotten better at concealing abuses. Internal industry documents reviewed by BusinessWeek reveal that numerous Chinese factories keep double sets of books to fool auditors and distribute scripts for employees to recite if they are questioned. And a new breed of Chinese consultant has sprung up to assist companies like Beifa in evading audits. ‘Tutoring and helping factories deal with audits has become an industry in China’ “
There is no doubt that labour violations have been occurring in China for many years, but up until recently everyone has just been ignoring it. Now that foreign companies are starting to require better working conditions in China - to the point where a company will stop doing business with a factory if it consistently shows poor working conditions - the Chinese factories are forced to show “improvements”. Unfortunately, as the article will point out, there are costs to creating better working environments, and foreign companies are unwilling to pay factories higher fees for products. In fact, thanks to companies like Wal-Mart, who are famous for pushing vendors to provide the lowest price, fees paid to factories are still being forced lower.
“American companies continually demand lower prices from their Chinese suppliers, allowing American consumers to enjoy inexpensive clothes, sneakers, and electronics. But factory managers in China complain in interviews that U.S. price pressure creates a powerful incentive to cheat on labor standards that American companies promote as a badge of responsible capitalism. These standards generally incorporate the official minimum wage, which is set by local or provincial governments and ranges from $45 to $101 a month. American companies also typically say they hew to the government-mandated workweek of 40 to 44 hours, beyond which higher overtime pay is required. These figures can be misleading, however, as the Beijing government has had only limited success in pushing local authorities to enforce Chinese labor laws.”
American consumers love their cheap luxury products, but if prices increased by 50%, would Americans still buy these goods? One of the biggest problems facing America-China relations is the large amount of American debt owned by the Chinese. This amount is estimated to be somewhere near $1 trillion USD. If American consumers stopped purchasing cheap goods from China because Chinese goods increased in price, the Chinese would not have any money to continue buying American debt, resulting in Americans being forced to start paying back their debt. Ordinarily this shouldn’t be a problem, but a majority of Americans are living on credit, meaning that if a creditor requests payment, the creditee would default - if you use your imagination you can see the chain reaction this would have.
“Some American companies now concede that the cheating is far more pervasive than they had imagined. ‘We’ve come to realize that, while monitoring is crucial to measuring the performance of our suppliers, it doesn’t per se lead to sustainable improvements’. “
In order for real improvements to be made within China, companies are going to have to start helping Chinese factories incorporate operational efficiencies into their daily routines. It is unlikely that foreign companies will start paying more for goods - the reason these companies are in China is because of the low cost - so companies will definitely have to start looking at other ways to help Chinese factories reduce costs.
“A RECENT VISIT by the compliance manager to a toy manufacturer in Shenzhen illustrated the crude ways that some suppliers conceal mistreatment. The manager recalls smelling strong paint fumes in the poorly ventilated and aging factory building. Young women employees were hunched over die-injection molds, using spray guns to paint storybook figurines. The compliance manager discovered a second workshop behind a locked door that a factory official initially refused to open but eventually did. In the back room, a young woman, who appeared to be under the legal working age of 16, tried to hide behind her co-workers on the production line, the visiting compliance manager says.”
This reminds me of a story I just heard. A friend of mine was telling me how he was trying to source a product from a factory. As part of the deal, my friend wanted to see the factory where the product was made. The factory owner invited my friend out to see the “factory”. The “factory” was a state of the art complex, with brand new machinery, clean floors, and happy employees. Sure enough, as my friend started asking questions, like to see where the specific product he wanted was produced, he found out that his product would be made in a second factory. After much arguing, the factory owner finally relented and agreed to take my friend to this other factory. Much to the shock of my friend, the second factory was at the back of some farm field, 30 minutes away from the first “factory”. Upon walking into the factory my friend was encountered with a level of filth he had not seen before. The second factory, or as I like to refer to it, the REAL factory, was filthy, it had old and outdated machines, no windows, and no running water, but this was the real factory - the factory that would produce his product. I would not be at all surprised to find out that the first “factory” was a shared factory by several other factories, and it is used only when a factory owner wants to impress a potential client, otherwise it lays dormant, producing nothing.
So incase you’ve lost track of where this is going, I urge you to read the BusinessWeek article, and if you have any questions or comments, post them below!
