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Customers Want It Cheap, Workers Pay Heavy Price
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As the quality control manager of Joyfaith, a company in suburban Shanghai that makes clothing for pets, Luo Guogong has two difficult choices: Either force workers to put in long periods of overtime, which could endanger their health, or fail to meet the deadlines of the company's clients.


What particularly bothers him was a report in Southern Metropolis Daily last month, which said a 35-year-old textile worker in south China's Guangdong Province died of exhaustion after she was forced to work excessive overtime for four days in a row.


Overtime is common at Joyfaith's factory, which has more than 100 workers, but Luo knows there's no easy solution.


"I feel very sad when I read such articles in newspapers," Luo said. "But it seems impossible not to have overtime, because, as a garment exporter, we have to meet the demands of our clients multinational firms and they constantly seek price cuts and shorter lead times."


In fact, many business owners in the Yangtze and Pearl River deltas, where most labor-intensive businesses are located, share Luo's problem. What's more, other parts of China will soon face the same issue as the concept of corporate social responsibility spreads from coastal areas to the hinterlands.


Factories are increasingly urged to comply with codes of conduct on labor, health, safety and environmental standards as China, widely regarded as the world's factory, is becoming a major target of the global corporate social responsibility campaign.


All the while, Western buyers continually demand goods at lower prices delivered at faster speed, squeezing the profits of Chinese suppliers and tempting them to violate the codes of conduct.


"The conflict of price and cost is one headache for Chinese factories," Liu Zhexin, a researcher for the Shanghai-based China Executive Leadership Academy, said at a symposium on corporate social responsibility.


Chinese factories, positioned at the lower end of the industry supply chain, have few negotiating chips, poor negotiating skills and the problem of intense domestic competition when dealing with multinationals.


He cited a recent tour to a State-owned textile factory in Taian, east China's Shandong Province.


At the request of the Japanese retailer, the factory exposes the cloth it produces to a 1,000-kilowatt light to find defects. And if there's a dark spot, which means the cloth is not evenly weaved, the Japanese buyer withdraws the order.


The T-shirts made from such high quality cloth are sold at only US$1 to the Japanese trader, which in turn charges US$15 for Japanese consumers.


"Most profits have gone to the multinational firms, but that fact does not prevent them from trying harder to demand price cuts from Chinese suppliers," Liu said.


When Liu visited the factory a second time one month later, he found the price was reduced to 60 US cents a piece because of intense competition.


But the income from charging 60 cents apiece was not sufficient to cover labor and material costs, Liu said, let alone other costs such as equipment depreciation.


But managers would not reject the order because with the order, the factory, which employs hundreds of workers, could go bankrupt more slowly, but without it the business would shut down right away.


"It's a matter of dying sooner or dying later," Liu said.


"Corporate social responsibility is essentially a kind of yielding of interests and rights from corporate shareholders to corporate stakeholders, but how can these shareholders protect workers' rights and the environment if the company's profits are so meagre that they even cannot cover the costs?"


Also, if China raises prices for most consumer goods to adhere to corporate social responsibility, multinationals are likely to move their purchase and investment to other developing countries with cheaper labour, weakening China's international competitiveness, Liu said.


The second problem faced by Chinese factories is the contradiction of working overtime and increasingly short delivery deadlines, he said.


According to Liu, in the past five years multinationals have been demanding increasingly shorter production lead times.


"Working overtime is unavoidable when an order comes," he said. "Generally speaking we have only at most two weeks to engage in production, and each worker on average has to make about 50 pieces of clothes in a week," said Luo, who acknowledged the requirement was excessive.


Tang Xiran - a senior manager of a company called Intertek Labtest, which provides international consumer product testing, inspection and certification services and sponsored the symposium - said it is a regular practice for multinationals to deliver an order with short lead times because they want to minimize storage costs.


"For instance, if they need a batch of toys for Christmas, multinational firms will send the order to Chinese suppliers only in late November to keep down logistics costs," Tang said.


But the short lead time jacks up the workload of Chinese factories, which must, in turn, force their workers to work overtime to complete the order.


"If the factories could receive the order in October, the situation would be much better," Tang said.


He also said that only about 5 to 10 percent of the factories his company surveyed for strict adherence to other items regulated by the code of conduct could ensure workers regular work hours, simply because they have enough lead times.


A third issue confronted by Chinese exporters is illustrated by what Liu Zhexin, the academy researcher, calls "the three-fire-extinguisher-nail problem."


Because of the lack of a consistent standard for corporate social responsibility in China, firms that provide products to several multinational retailers have to meet different, sometimes conflicting, demands.


For instance, three multinationals asked a firm in Shenzhen, in south China's Guangdong Province, to hang their fire extinguishers at different places on the wall, Liu said.


So the firm had to fix three nails in the wall and move the extinguishers when inspectors from different companies arrived for testing.


The endless factory audits and "certifications," along with the clean supply chain movement launched by multinationals, increase the burden on Chinese suppliers, which struggle to make any profits given the price cuts and shorter lead time.




Liu says multinationals should pay more to allow Chinese factories to meet a standard of corporate responsibility to its workers.


Multinationals, to protect their image, are imposing ever-growing requirements on Asian factories, which include issues such as overtime, salaries and workplace safety.


But at the same time, they're also demanding price cuts and production against short lead times, Liu said.


"The multinationals have two alternatives: Cheat, or share the cost," Liu said.


He also cited a comment given by the Financial Times of London published in April 2005: "The fundamental reason why labor exploitation exists in China is that China is a poor country. They need money to solve this problem, which can only be made by raising product prices before the raising of productivity. Western consumers should no longer feel at ease enjoying overly low-priced commodities."


Liu said to take the corporation responsibility may weaken competitiveness because of rising costs, but the trend of a worldwide campaign toward responsibility may also strengthen competitiveness. In Liu's eyes, this is two sides of the same coin.


(China Daily June 7, 2006)

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