Tuesday, July 14, 2009

Big Trouble in Big China: Irresponsible Business

China is still a long ways away from being an ideal place to set up shop. Irresponsible business practices are still the rule, not the exception, and seem ingrained in societal norms.

STR Responsible Sourcing (RS) is a Supply Chain Management auditor, insuring that manufacturers, distributors and other stakeholders who touch consumer products are operating in an ethical and sustainable manner. After spending some time looking through there annual report, I found very interesting statistics detailing the number, type and location of infringements.

Take a look at the pie graph below. China/Hong Kong represents more than half of the pie, with the next largest offender being South East Asia.

Note: This graph shows the total, not the percentage. The large disparity between China and other regions could be because of the greater amount of manufacturing taking place in China. Another reason could be the amount of business STR has in China compared to the other regions.

Even more shocking is the number of offenses by category. Over 50% of those companies inspected had issues with working hours and minimum wage. Child Labor infringements were found in nearly twenty five percent of inspections.

The report also sheds light on the widespread use of bribery by plant managers. Upon a plant inspection in China, one of the inspectors commented:
It happens so often that it’s become a standard part of my job to decline the offers and explain to the management why bribery is not the solution. What motivates facilities to give out money to auditors? I have the following points of view on why bribery is common in China:
• The facility wants auditors to reduce the number of findings;
• The facility wants auditors to reduce the major findings, this change to a better grade;
• Provide money is considered a normal friendly gesture;
• The facility feels that they are obligated to give money out, since other factories engage in similar practices;
• The facility believes that giving money is the only way to pass a social compliance assessment;
• The facility follows instructions from their vendor.

Another inspector noted that the bribes usually ranged from RMB 500 to 5000. Depending on the person, that amount could be several times his or her monthly wages.

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