SECRETS , LIES , AND SWEATSHOPS

[Anonymous]

Secrets, Lies, And Sweatshops
American
importers have long answered criticism of conditions at their Chinese
suppliers with labor rules and inspections. But many factories have
just gotten better at concealing abuses
Tang Yinghong
was caught in an impossible squeeze. For years, his employer, Ningbo
Beifa Group, had prospered as a top supplier of pens, mechanical
pencils, and highlighters to Wal-Mart Stores and other major retailers.
But late last year, Tang learned that auditors from Wal-Mart, Beifa’s
biggest customer, were about to inspect labor conditions at the factory
in the Chinese coastal city of Ningbo where he worked as an
administrator. Wal-Mart had already on three occasions caught Beifa
paying its 3,000 workers less than China’s minimum wage and violating
overtime rules, Tang says. Under the U.S. chain’s labor rules, a fourth
offense would end the relationship.

Help arrived suddenly in the
form of an unexpected phone call from a man calling himself Lai
Mingwei. The caller said he was with Shanghai Corporate Responsibility
Management & Consulting Co., and for a $5,000 fee, he’d take care
of Tang’s Wal-Mart problem. “He promised us he could definitely get us
a pass for the audit,” Tang says.

Lai provided advice on how to
create fake but authentic-looking records and suggested that Beifa
hustle any workers with grievances out of the factory on the day of the
audit, Tang recounts. The consultant also coached Beifa managers on
what questions they could expect from Wal-Mart’s inspectors, says Tang.
After following much of Lai’s advice, the Beifa factory in Ningbo
passed the audit earlier this year, Tang says, even though the company
didn’t change any of its practices.

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,” says Tang, 34, who recently left Beifa of his own volition to
start a Web site for workers.

A lawyer for Beifa, Zhou Jie,
confirms that the company employed the Shanghai consulting firm but
denies any dishonesty related to wages, hours, or outside monitoring.
Past audits had “disclosed some problems, and we took necessary
measures correspondingly,” he explains in a letter responding to
questions. The lawyer adds that Beifa has “become the target of
accusations” by former employees “whose unreasonable demands have not
been satisfied.” Reached by cell phone, a man identifying himself as
Lai says that the Shanghai consulting firm helps suppliers pass audits,
but he declines to comment on his work for Beifa.

Wal-Mart
spokeswoman Amy Wyatt says the giant retailer will investigate the
allegations about Beifa brought to its attention by BusinessWeek.
Wal-Mart has stepped up factory inspections, she adds, but it
acknowledges that some suppliers are trying to undermine monitoring:
“We recognize there is a problem. There are always improvements that
need to be made, but we are confident that new procedures are improving
conditions.”

CHINESE EXPORT manufacturing is rife with tales of
deception. The largest single source of American imports, China’s
factories this year are expected to ship goods to the U.S. worth $280
billion. 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. That’s another reason abuses persist and
factory oversight frequently fails.

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,” says Hannah Jones, Nike Inc.’s vice-president for
corporate responsibility. “We still have the same core problems.”

This
raises disturbing questions. Guarantees by multi-nationals that
offshore suppliers are meeting widely accepted codes of conduct have
been important to maintaining political support in the U.S. for growing
trade ties with China, especially in the wake of protests by unions and
antiglobalization activists. “For many retailers, audits are a way of
covering themselves,” says Auret van Heerden, chief executive of the
Fair Labor Assn., a coalition of 20 apparel and sporting goods makers
and retailers, including Nike, Adidas Group, Eddie Bauer, and Nordstrom
(JWN ). But can corporations successfully impose Western labor
standards on a nation that lacks real unions and a meaningful rule of
law?

Historically associated with sweatshop abuses but now
trying to reform its suppliers, Nike says that one factory it caught
falsifying records several years ago is the Zhi Qiao Garments Co. The
dingy concrete-walled facility set near mango groves and rice paddies
in the steamy southern city of Panyu employs 600 workers, most in their
early 20s. They wear blue smocks and lean over stitching machines and
large steam-blasting irons. Today the factory complies with labor-law
requirements, Nike says, but Zhi Qiao’s general manager, Peter Wang,
says it’s not easy. “Before, we all played the cat-and-mouse game,” but
that has ended, he claims. “Any improvement you make costs more money.”
Providing for overtime wages is his biggest challenge, he says. By law,
he is supposed to provide time-and-a-half pay after eight hours on
weekdays and between double and triple pay for Saturdays, Sundays, and
holidays. “The price [Nike pays] never increases one penny,” Wang
complains, “but compliance with labor codes definitely raises costs.”

A
Nike spokesman says in a written statement that the company, based in
Beaverton, Ore., “believes wages are best set by the local marketplace
in which a contract factory competes for its workforce.” One way Nike
and several other companies are seeking to improve labor conditions is
teaching their suppliers more efficient production methods that reduce
the need for overtime.

The problems in China aren’t limited to
garment factories, where labor activists have documented sweatshop
conditions since the early 1990s. Widespread violations of Chinese
labor laws are also surfacing in factories supplying everything from
furniture and household appliances to electronics and computers.
Hewlett-Packard, (HPQ ) Dell (DELL ), and other companies that rely
heavily on contractors in China to supply notebook PCs, digital
cameras, and handheld devices have formed an industry alliance to
combat the abuses.

A compliance manager for a major
multinational company who has overseen many factory audits says that
the percentage of Chinese suppliers caught submitting false payroll
records has risen from 46% to 75% in the past four years. This manager,
who requested anonymity, estimates that only 20% of Chinese suppliers
comply with wage rules, while just 5% obey hour limitations.

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. The Chinese factory official admitted he was violating various
work rules.

The situation in China is hard to keep in
perspective. For all the shortcomings in factory conditions and
oversight, even some critics say that workers’ circumstances are
improving overall. However compromised, pressure from multinationals
has curbed some of the most egregious abuses by outside suppliers.
Factories owned directly by such corporations as Motorola Inc (MOT ).
and General Electric Co. (GE ) generally haven’t been accused of
mistreating their employees. And a booming economy and tightening labor
supply in China have emboldened workers in some areas to demand better
wages, frequently with success. Even so, many Chinese laborers,
especially migrants from poor rural regions, still seek to work as many
hours as possible, regardless of whether they are properly paid.

In
this shifting, often murky environment, labor auditing has mushroomed
into a multimillion-dollar industry. Internal corporate investigators
and such global auditing agencies as Cal Safety Compliance, sgs of
Switzerland, and Bureau Veritas of France operate a convoluted and
uncoordinated oversight system. They follow varying corporate codes of
conduct, resulting in some big Chinese factories having to post seven
or eight different sets of rules. Some factories receive almost daily
visits from inspection teams demanding payroll and production records,
facility tours, and interviews with managers and workers. “McDonald’s
(MCD ), Walt Disney, (DIS ) and Wal-Mart are doing thousands of audits
a year that are not harmonized,” says van Heerden of Fair Labor. Among
factory managers, “audit fatigue sets in,” he says.

Some
companies that thought they were making dramatic progress are
discovering otherwise. A study commissioned by Nike last year covered
569 factories it uses in China and around the world that employ more
than 300,000 workers. It found labor-code violations in every single
one. Some factories “hide their work practices by maintaining two or
even three sets of books,” by coaching workers to “mislead auditors
about their work hours, and by sending portions of production to
unauthorized contractors where we have no oversight,” the Nike study
found.

THE FAIR LABOR ASSN. released its own study last November
based on unannounced audits of 88 of its members’ supplier factories in
18 countries. It found an average of 18 violations per factory,
including excessive hours, underpayment of wages, health and safety
problems, and worker harassment. The actual violation rate is probably
higher, the fla said, because “factory personnel have become
sophisticated in concealing noncompliance related to wages. They often
hide original documents and show monitors falsified books.”

While
recently auditing an apparel manufacturer in Dongguan that supplies
American importers, the corporate compliance manager says he discussed
wage levels with the factory’s Hong Kong-based owner. The 2,000
employees who operate sewing and stitching machines in the multi-story
complex often put in overtime but earn an average of only $125 a month,
an amount the owner grudgingly acknowledged to the compliance manager
doesn’t meet Chinese overtime-pay requirements or corporate labor
codes. “These goals are a fantasy,” the owner said. “Maybe in two or
three decades we can meet them.”

Pinning down what Chinese
production workers are paid can be tricky. Based on Chinese government
figures, the average manufacturing wage in China is 64 cents an hour,
according to the U.S. Bureau of Labor Statistics and demographer Judith
Banister of Javelin Investments, a consulting firm in Beijing. That
rate assumes a 40-hour week. In fact, 60- to 100-hour weeks are common
in China, meaning that the real manufacturing wage is far less. Based
on his own calculations from plant inspections, the veteran compliance
manager estimates that employees at garment, electronics, and other
export factories typically work more than 80 hours a week and make only
42 cents an hour.

BusinessWeek reviewed summaries of 28 recent
industry audits of Chinese factories serving U.S. customers. A few
factories supplying Black & Decker, (BDK ) Williams-Sonoma, and
other well-known brands turned up clean, the summaries show. But these
facilities were the exceptions.

At most of the factories,
auditors discovered records apparently meant to falsify payrolls and
time sheets. One typical report concerns Zhongshan Tat Shing Toys
Factory, which employs 650 people in the southern city of Zhongshan.
The factory’s main customers are Wal-Mart and Target. (TGT ) When an
American-sponsored inspection team showed up this spring, factory
managers produced time sheets showing each worker put in eight hours a
day, Monday through Friday, and was paid double the local minimum wage
of 43 cents per hour for eight hours on Saturday, according to an audit
report.

But when auditors interviewed workers in one section,
some said that they were paid less than the minimum wage and that most
of them were obliged to work an extra three to five hours a day,
without overtime pay, the report shows. Most toiled an entire month
without a day off. Workers told auditors that the factory had a
different set of records showing actual overtime hours, the report
says. Factory officials claimed that some of the papers had been
destroyed by fire.

Wal-Mart’s Wyatt doesn’t dispute the
discrepancies but stresses that the company is getting more aggressive
overall in its monitoring. Wal-Mart says it does more audits than any
other company–13,600 reviews of 7,200 factories last year alone–and
permanently banned 141 factories in 2005 as a result of serious
infractions, such as using child labor. In a written statement, Target
doesn’t respond to the allegations but says that it “takes very
seriously” the fair treatment of factory workers. It adds that it “is
committed to taking corrective action–up to and including termination
of the relationship for vendors” that violate local labor law or
Target’s code of conduct. The Zhongshan factory didn’t respond to
repeated requests for comment.

An audit late last year of Young
Sun Lighting Co., a maker of lamps for Home Depot, (HD ) Sears (SHLD ),
and other retailers, highlighted similar inconsistencies. Every
employee was on the job five days a week from 8 a.m. to 5:30 p.m., with
a lunch break and no overtime hours, according to interviews with
managers, as well as time sheets and payroll records provided by the
300-worker factory in Dongguan, an industrial city in Guangdong
Province. But other records auditors found at the site and
elsewhere–backed up by auditor interviews with workers–revealed that
laborers worked an extra three to five hours a day with only one or two
days a month off during peak production periods. Workers said they
received overtime pay, but the “auditor strongly felt that these
workers were coached,” the audit report states.

Young Sun denies
ever violating the rules set by its Western customers. In written
answers to questions, the lighting manufacturer says that it doesn’t
coach employees on how to respond to auditors and that “at present,
there are no” workers who are putting in three to five extra hours a
day and getting only one or two days off each month. Young Sun says
that it follows all local Chinese overtime rules.

Home Depot
doesn’t contest the inconsistencies in the audit reports about Young
Sun and three other factories in China. “There is no perfect factory, I
can guarantee you,” a company spokeswoman says. Instead of cutting off
wayward suppliers, Home Depot says that it works with factories on
corrective actions. If the retailer becomes aware of severe offenses,
such as the use of child labor, it terminates the supplier. A Sears
spokesman declined to comment.

Coaching of workers and midlevel
managers to mislead auditors is widespread, the auditing reports and
BusinessWeek interviews show. A document obtained last year during an
inspection at one Chinese fabric export factory in the southern city of
Guangzhou instructed administrators to take these actions when faced
with a surprise audit: “First notify underage trainees, underage
full-time workers, and workers without identification to leave the
manufacturing workshop through the back door. Order them not to loiter
near the dormitory area. Secondly, immediately order the receptionist
to gather all relevant documents and papers.” Other pointers include
instructing all workers to put on necessary protective equipment such
as earplugs and face masks.

SOME U.S. RETAILERS SAY this
evidence isn’t representative and that their auditing efforts are
working. BusinessWeek asked J.C. Penney Co. (JCP ) about audit reports
included among those the magazine reviewed that appear to show
falsification of records to hide overtime and pay violations at two
factories serving the large retailer. Penney spokeswoman Darcie M.
Brossart says the company immediately investigated the factories, and
its “auditors observed no evidence of any legal compliance issues.”

In
any case, the two factories are too small to be seen as typical, Penney
executives argue. The chain has been consolidating its China supply
base and says that 80% of its imports now come from factories with
several thousand workers apiece, which are managed by large Hong Kong
trading companies that employ their own auditors. Quality inspectors
for Penney and other buyers are at their supplier sites constantly, so
overtime violations are hard to hide, Brossart says.

Chinese
factory officials say, however, that just because infractions are
difficult to discern doesn’t mean they’re not occurring. “It’s a
challenge for us to meet these codes of conduct,” says Ron Chang, the
Taiwanese general manager of Nike supplier Shoetown Footwear Co., which
employs 15,000 workers in Qingyuan, Guangdong. Given the fierce
competition in China for foreign production work, “we can’t ask Nike to
increase our price,” he says, so “how can we afford to pay the higher
salary?” By reducing profit margins from 30% to 5% over the past 18
years, Shoetown has managed to stay in business and obey Nike’s rules,
he says.

But squeezing margins doesn’t solve the larger social
issue. Chang says he regularly loses skilled employees to rival
factories that break the rules because many workers are eager to put in
longer hours than he offers, regardless of whether they get paid
overtime rates. Ultimately, the economics of global outsourcing may
trump any system of oversight that Western companies attempt. And these
harsh economic realities could make it exceedingly difficult to achieve
both the low prices and the humane working conditions that U.S.
consumers have been promised.

[Author]

November 20, 2006 at 10:31 AM