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 user 2006-11-20 at 10:31:00 am Views: 81
  • #17179

    Secrets, Lies, And Sweatshops
    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.

    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

    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.”

    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

    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.”

    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.

    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.

    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.

    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

    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.”

    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

    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.

    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.”

    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.

    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.