#4 CHOOSE | Improving working conditions | E-Matura Reading Sep 2019
Issues with working conditions in electronic component factories in China and elsewhere have been well publicised recently. Advocacy groups have uncovered various labour rights violations, from unpaid overtime and excessively long working hours, to poor living conditions and insufficient training. Some major brands have found themselves accused of not doing enough to safeguard the wellbeing of workers at factories that are often run by sub-contractors.
The truth is that countless manufacturers could be accused of similar sins, or worse – not only in the electronics industry, but in businesses as diverse as textiles, tanneries and toys. Every few months, the news is filled with another scandal about dire labour conditions. In April, a factory in Bangladesh collapsed, killing 1,132 garment workers.
These widespread problems reflect a longstanding conviction that companies can often make fatter profits by cutting corners and doing the wrong thing. But this cynical philosophy is proving to be badly misguided – not just morally, but financially. Research published by KPMG in the Netherlands in July 2013, commissioned by IDH, the Sustainable Trade Initiative, offers compelling evidence that companies can profit by treating their workers better.
Focusing on electronics manufacturers in China’s Pearl River Delta, KPMG gathered data from more than 70 factories, interviewed management teams and analysed 99 academic studies. The findings suggest that there are tangible benefits to the bottom line when companies invest in improving working conditions. Some of the labour-related investments that were modelled could cause profit margins to rise as much as 0.4% – a significant windfall in an industry where margins typically range between 1% and 2%. In some cases, this financial payback can occur in as little as four to 20 months.
The research explored the effect of different investments in workers’ wellbeing. For example, companies can reduce the number of mistakes workers make by improving physical conditions in sweltering factories and using air-conditioners. They can hire ergonomics specialists to reduce injuries that lead to sick days. They can improve training to combat the risk of health and safety incidents, or use performance-based pay as an incentive to boost workers’ productivity.
The findings suggest that productivity rises significantly when employees are treated well. Contented workers are also less likely to quit, saving companies the hefty cost of hiring and training new recruits. In the past, this wasn’t a pressing concern, since millions of rural labourers were flocking to Chinese cities in search of factory jobs. Now, China and other countries face mounting labour shortages, so the ability to attract and retain workers will be an increasingly important competitive advantage.
Companies that invest wisely in improving labour conditions can also reduce the considerable threat of negative publicity. In a globalised economy, with manufacturing dispersed all over the world, it is increasingly difficult to maintain control – and when things go wrong, the value of a brand can be badly damaged. Given these reputational risks, companies have more incentive than ever to make sure their suppliers act responsibly.
There are several routes companies can take to achieve this: give a cold shoulder to suppliers that violate the code of conduct, co-invest with suppliers that have a good plan for improving working conditions (and possibly share in the proceeds), and reward those that outperform on working conditions. And, of course, suppliers need to step up their game and become more sophisticated and trustworthy partners for leading brands.