LANG 306(2) Meeting Simulation

Simulation 2: Ethical treatment of workers

Context

Forever Fabrics is a medium-sized factory in Guangzhou, owned by Mr Cheung, a Guangzhou native and former Guangzhou city government official. The factory produces denim jeans, which are sold all over the world. The factory’s biggest contracts are with several large US retail stores, including the retail giant Megamart.

Megamart is a huge worldwide chain, though most of its stores are in the US. It has built up a successful business empire by buying large volumes of goods at the cheapest price, and selling them cheaply to the customers. Profit margins are small, but Megamart’s turnover is huge.

Megamart buys its goods from developing countries, which have low labour costs. But the company knows that US public opinion is concerned about the conditions of workers in these factories. So Megamart employs Corporate Services, an independent Hong Kong-based company, to carry out regular inspections of its suppliers’ factories. Corporate Services is responsible for making sure that the factories comply with international codes of conduct on workers’ salaries, living conditions, overtime and workplace safety. Corporate Services has always reported that working conditions at Forever Fabrics are acceptable.

The Problem

Three years ago, a small US-based film company asked Mr Cheung if they could film in his factory. They claimed that their film would be about successful entrepreneurs in China, with him as the star. Mr Cheung allowed them to film wherever they wanted to and instructed the workers to cooperate with them.

In fact, the film company was really interested in showing the negative effects of globalisation on workers’ conditions, and the film exposed the poor working conditions in the factory. Workers were not paid for their first month of work, they worked long hours of unpaid overtime (sometimes overnight) and often waited months to receive their salaries. Megamart was named as a major customer of Forever Fabrics.

The film won awards in Europe and the US and was shown at many film festivals. This resulted in considerable negative publicity for Megamart in the US and for the whole garment industry in Guangzhou and other parts of China.

The garment industry in Asia
According to many small manufacturers of clothing in Asia, large multinational firms are continually demanding goods at lower prices delivered at greater speed. This makes it nearly impossible for their Asian suppliers to comply with codes of practice on labour, health, safety and environmental standards.
Yet to protect their image, the multinationals are imposing ever-growing requirements on Asian factories to abide by corporate social responsibility, which includes issues such as overtime, salaries and workplace safety.
In order to produce goods more quickly, factory owners are pushing workers to work for longer hours. In China, the labour law states that 36 hours is the maximum amount of overtime a worker can do. But this law is often disregarded in practice. Many labour organisations also believe that constant reduction in price is forcing suppliers of goods to the multi-nationals to disregard local labour laws in order to make a profit. For some clothing products, factory prices have fallen 30 per cent in China in the past five years.
Factory owners often have no choice but to cut their prices and speed up their production. Multinationals can easily move to another supplier or even another country. Thousands of factories are competing in Asia, China and Africa for business.
Consumer concerns and responses from the industry
Consumers in wealthy countries are becoming increasingly concerned about the poor conditions in which clothes are produced. Recently in Germany members of the Clean Clothes Campaign demonstrated in front of shops with signs saying, “Made in Hell”. In 2006, a leading British newspaper revealed that many famous British brands were produced at a factory in Cambodia which had previously been judged as one of the worst of those inspected in Cambodia by the International Labour Organisation (ILO) on a host of health and safety issues, as well as its treatment of trade union activity.
To avoid public criticism, large companies often break contracts with suppliers found to be maltreating workers. But according to labour activists, they should instead be working with the suppliers to help them to improve conditions. This is not easy – according to one Hong Kong-based labour organization, large companies often have a policy of corporate social responsibility and have systems to investigate and monitor factories by conducting inspections but these inspections often do not see the true picture. The factory may make false records or instruct the workers to tell lies when they are questioned.

Conditions of workers in China

The number of labour disputes in China has been rising. From 1993 to 2002, the number of disputes in China rose from 12,368 to 184, 116 with the number of workers involved skyrocketing from 35,683 to 608,396, according to China’s Ministry of Labour and Social Security.

There is an increasing shortage of workers in southern China. According to a researcher from the Fujian provincial labour department, this is because the wages offered to workers by factories are based on the minimum wage scales, rather than a market rate. Workers are now less willing ot work for minimum wages in harsh conditions.

Last year a survey of 2000 private companies by the National People’s Congress found most firms were violating the basic rights of their employees.

Migrant workers were owed more that 1 billion yuan in unpaid wages last year according to the All-China Federation of Trade Unions. The Federation also revealed that up to 76% of migrant workers from the countryside received no overtime pay for working on rest days or public holidays.

Hong Kong-based China Labour Bulletin (CLB) reported that at a labour law conference in March 2006, legal experts proposed that the new crime of “withholding labour remuneration” should be added to the Criminal Law to deter employers from withholding their employees’ wages. However CLB believes that employers are unlikely to improve their behaviour unless the government implements a system of monitoring factories to stop abuses, and unless workers are able to negotiate market wages.

Corporate Social Responsibility (CSR)
In many countries the public is becoming increasingly sensitive about the behaviour of companies. Issues such as environmental damage, poor treatment of workers, and faulty production leading to customers’ inconvenience or danger, are regularly highlighted in the media, primarily in affluent countries.
In many countries government regulations regarding environmental and social issues have increased and some investors have begun to examine a corporation’s CSR policy when making investment decisions. Consumers are becoming increasingly sensitive to the CSR performance of the companies from which they buy their goods and services.
These trends have contributed to the pressure on companies to operate in an economically, socially and environmentally sustainable way. However many large companies, based in developed countries, sub-contract part of their business to smaller companies, often in poorer countries where production costs are cheaper. It is difficult for these large corporations to monitor the ethical behaviour of their subcontractors, so they sometimes employ companies which specialise in this field to do the monitoring for them.

The Meeting

The meeting involves two parties:

Party 1 comprises:

  • Mr Cheung: owner of Forever Fabrics (group leader)
  • Li Hong: Production manager of Forever Fabrics
  • Zhang Li: Representative from the Labour Department of the Guangzhou City Government

Party 2 comprises:

  • Leslie Dworkin: Public relations manager Megamart (worldwide). Group leader and Chair of the meeting
  • Helen Wang: Regional manager Megamart (Asia)
  • Kim Yeung: Corporate Services (personally responsible for inspecting and reporting on Forever Fabrics)

Focus for discussion and decisions to be made:

  • how serious the problem really is (does it matter?)
  • what, if any action should be taken?

Your teacher will give you guidelines to assist your team in planning for the meeting. For the success of the meeting, you are advised not to show these guidelines to members of the other team.

Remember to use the planning form in the book (p.29) to help you formulate your ideas for the meeting.