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Who should be responsible for decent working conditions?

“Should the responsibility for decent work conditions in Global Value Chains lie primarily with firms employing the workers rather than the lead firms?”

By Tendai Tembo

With Global Value Chains serving as an important source of employment, creating many jobs, whilst driving productivity, they have impacted the labour market and workers in varied ways.

According to the World Bank, 2021 whilst participating in Global Value Chains is crucial for economic upgrading, there have been concerns about the work conditions for those in the upstream particularly in developing countries.

Economic upgrading is shifting to better value-added labour, innovation, cognizance, and expertise, and gaining advantages from participating in Global Value Chains. Research shows that positive results with regards to increased value in production does not automatically translate to social upgrading, improving working conditions and workers’ rights.

For example, the Foxconn factory in China meant to bring both economic and social upgrading became renowned for wage and hours exploitation, and serious accidents resulting in casualties.

As many cases have been reported of poor wages and poor working conditions leading to deaths and suicides amongst others, these issues cannot be ignored.

As Global Value Chains connect firms, workers, and consumers globally, contributing to the overall value creation, it is imperative to understand the working conditions these workers operate in, processes for improvement in their rights and entitlements and employment conditions.

Although corporate social responsibility (CSR) is now being prioritised, there is still much debate on who the responsibility for decent work conditions in Global Value Chains lies with. Workers should be treated as social agents (people who are capable of entitlements) rather than productive factors, whose aim is to meet the demands of global buyers.

Poor working conditions in developing countries

As perceptions of what constitutes poor working conditions varies it is imperative to clarify what these may include, for example, inadequate working space, ineffective technology, bad lighting, lack of provision of toilets, safety equipment and materials, inefficient workplace processes, use of child labour, toxic organisational culture, and a lack of workplace flexibility and balance.

Despite the reduction in child labour which was prevalent in the 90s in Bangladesh, they are still issues of poor wages and working conditions. China recorded suicides from labourers, whilst in Bangladesh hundreds of workers were killed through factories collapsing.

Workers were killed in a fire in a factory supplying international retailers including Wal-Mart and Sears, who later professed they were unaware that their goods were being manufactured there, despite the numerous social and environmental audits that had taken place.

As reported by the BBC news, 2013 saw Bangladesh’s, poor working conditions accentuated by the Rana Plaza building collapse which left 1135 casualties, and outbreaks of fire including the Tazreen garment factory blaze in 2012 killing over 100 people.

The abovementioned incidences have triggered renewed concerns about inadequate national labour regulations and current private social audits as they do not appear to guarantee basic degrees of safety and satisfactory labour conditions for workers in less developed nations that survive on exports.

With innumerable examples, it is imperative to understand who has responsibility for alleviating these issues and addressing poor working conditions.

Due to the complexity of Global Value Chains and lead firms not always having visibility of what is taking place at supplier sites, suppliers should play an active role considering they work closely with the workers.

They should promote health and wellbeing of workers, work-life balance, and ongoing development of workers’ skills. They have power of choice on whether to positively impact workers and working conditions by adopting lead firms’ examples regarding compliance to standards.

However, it is acknowledged that suppliers face some challenges, for example, lack of incentives to comply with labour standards and lack of assurance of continued business, or aid in the compliance. Purchasers are not prepared to spend more even when suppliers are compliant.

Despite training material in local languages being available, there is difficulty in communicating standards leading to a general unawareness of employment rights.

As pressure mounts on lead firms to make improvements to work environments and situations at factories, what is required of suppliers increases along with reduced lead times. Without support it is a challenge to adhere to the labour standards.

Thus, the argument that lead firms should be responsible and accountable for working conditions based on the power relationship they have with suppliers whilst working collaboratively with other actors, for example Non-governmental organisations (NGOs), trade unions providing independent, yearlong insight and monitoring of working conditions at factory locations.

Governance involves powerful actors in the Global Value Chain setting, assessing, and implementing guidelines under which others operate. It involves applying control through specifications. Governance of Global Value Chains is a vital concept of the top-down view, focusing mostly on lead firms and establishment of international sectors.

Even by definition, lead firms should drive and be responsible for governing Global Value Chains. According to the governance viewpoint, those who supply have minimal power and choice to influence how the Global Value Chains are governed, being particularly true in captive value chains where there is transactional dependency by the small suppliers on larger buyers.

Networks are regularly characterized by vast degrees of surveying and dominance by lead firms. Authority is exercised forcibly by lead firms and implies a vast level of definite coordination and estimate of power asymmetry demonstrating their dominance over their suppliers. Thus, lead firms need to demonstrate that they assess and check how suppliers treat their workers.

As local to global interpretations of what constitutes poor working conditions could be sharply contrasting, standard definitions by the United Nations should be effectively disseminated by lead firms to all actors in their Global Value Chain to prevent any misinterpretations.

Lead firms can join the Ethical Trading Initiative (ETI) (dominant association of corporations), organised labour unions, non-governmental organisations which advocate civility for employees’ entitlements worldwide including labour standards (via the new cooperation paradigm).

According to ETI, 2021 lead firms can adopt the labour practice codes which all their suppliers in their Global Value Chain would have to strive after, including around renumeration, employment hours, and rights to join free trade unions.

Lead firms have responsibility based on the power relationships they have with their suppliers and possess the power to reach wider audiences with regards to changes and regulations.

They can ensure basic social and medical insurance coverage by suppliers to all workers, facilitate measuring stress levels of workers during annual medical check-ups by performing stress-mapping and addressing identified cases.

Although the position held by lead firms grants them the ability to behave as gatekeepers to their supplier network, overseeing the extent to which sustainable development standards are implemented, their efforts can be limited by the value chain or other circumstances which may reposition the apportionment of power to alternative actors in the Global Value Chain.

Despite being aware of their roles in addressing working conditions, they understand that there will only be true transformation through collaborating with governments, NGOs, trade unions, media, and other extra-firm actors.

Lobbying and working with these to enforce legislation and monitor compliance is key. For example, many involved as part of the ETI, reached out to the UK government to introduce the Modern Slavery Act. This has led to some organisations committing to adhere to this act.

It is imperative to have trade union representation in manufactories for safeguarding employees’ benefits and being their voice, for example for collective bargaining.

An example is how IGU affiliated with Amalgamated Union of Kenya Metal Workers and protested the pay per unit performed arrangement at Kenya Vehicle Manufacturers. After support from the Volkswagen Works Council, 42 affected employees received improved contracts with regular monthly payments.

Similarly, in Zimbabwe, the Zimbabwe Congress of Trade Unions (ZCTU) were the voice of many workers of the Chinese Ceramic Tiles company, Sunny Yi Feng who were accused of abusing their workers and violating work protocols. Trade Unions can be the voice of workers to advocate for safer work environments or for freedom to leave work or change employers and get formal and non-zero-hour contracts.

In 2019, the Zimbabwe Environmental Lawyers Association (ZELA) claimed that the majority of mine workers worked under risky conditions and cited many cases of child labour, including in the farming sector. In response to this some mining corporations awarded an 80% increase in wages to their employees. The government however still needs to do more for example, implement legislative, judiciary, and administrative and policy measures to improve working conditions for all workers.

Extra-firm actors can bridge gaps ignored by lead firms and suppliers with regards to exploitation in Global Value Chains. Lead firms can work collaboratively with multi-lateral initiatives, for example, the International Labour Organisation and Organisation for Economic Co-operation and Development to bring changes to workers.

For example, the Rainforest Alliance introduced programmes to train and certify poor suppliers to be incorporated into firms’ Global Value Chains resulting in reductions in child labour and poor suppliers’ profits and women’s access to labour opportunities improving.

Lead firms can work together with extra-firm actors to ensure ethical auditing, and assessments, perform country level risk profiling and supply chain ethical transparency.

For example, they can use Sedex a membership organisation providing an online platform for organisations to manage and improve working conditions in their Global Value Chains, by providing the necessary tools and services to assist them source responsibly.

Managerial Implications

The compliance paradigm involving private social auditing focuses primarily on vertical relations (international buyers and suppliers) and less explicitly on how horizontal relations affect the extent of social compliance in the export sector in underdeveloped nations. The assumption of the compliance-based model is that extra-firm actors could potentially put pressure on lead firms by naming and shaming those that fail to provide safe working environments in their production plants in less developed nations and can organise boycotting of firms that do not.

This is in the hope that lead firms then develop corporate codes of conduct or ethics guidelines to be implemented in developing countries and that compliance would be examined through social and environmental audits. In theory, suppliers demonstrated compliance as they were informed that if they did not comply their orders would be decreased or excluded from Global Value Chains.

However, in practice, there was minimal evidence that lead firms would exclude those that failed to comply. There has been observation that some lead firms are less strict about audits than others. Furthermore, some local suppliers engaged in widespread auditing fraud. Suppliers coach workers on responses to provide auditors and falsify workers records through tailored computer programs, thus appearing as compliant.

Although UK-based ETI, some NGOs and lead firms adopt developmentally aligned approaches, to improve working conditions, these compliance-based models have brought minimal advancements in work environments in less developed countries. To overcome the challenges, lead firms can implement a culture of safety across all supplier sites, drastically decreasing the number of accidents.

Independent unannounced audits could be conducted; however, these may pressurise suppliers who may then pull out of the contracts. Many firms commence their ethical trade responses with audits to understand the issues at stake and what to prioritise and take an audit-led approach to due diligence and base their key performance indicators around audit completion and compliance.

Audits however maybe ineffective regarding identifying poor working conditions, for example, modern slavery as they do not seek out root causes, they mostly look at technical compliance. Auditing should be viewed as the starting point and not the end point. Transparency, communication and having people on the ground is instrumental to achieving this.

If lead firms can have local people in each of the countries they source from, to build relationships with factory owners, workers, NGOs, and trade unions this can be a great asset as they provide year-round monitoring. This is in line with the new cooperation paradigm which was advocated to remedy limitations of the compliance-based model.

Based on this model lead firms adjust their procurement habits; assist improve the capability of domestic supplier managers and employees and work cooperatively with domestic people to enhance factory surveillance and ensure workers comply to standards.
For benefits to be fully realised, trickle down and be distributed across all actors participating in the Global Value Chain especially in developing countries, the context they operate in, risk profiles, governance structures and configurations required to support concurrent economic and social upgrading enabling favourable results for all actors must be understood.

Research shows that end-to-end Global Value Chain visibility and engagement are vital to monitor working conditions. The more participants in the Global Value Chain the less control and visibility the lead firms have on the Global Value Chain. Suggestions are that the length and complexity of Global Value Chains be decreased both financially and from a responsible sourcing perspective, the shorter the supply chain the less risky.

The child labour allegations that Primark faced in 2008 are an example of a complex Global Value Chain. Primark claimed that this was a result of unauthorised sub-contracting which they were unaware of which happens when supply chains are long and complex.

Communication can also be adopted between non-public audit programmes and communal labour inspections leading to new methods, private and public actions can complement each other in promoting implementation of work standards, and better working conditions.

Assuming economic upgrading naturally translates to social upgrading with improved remuneration, and workplace situation is not necessarily true, as although economic upgrading can bring about improved quantifiable standards for working, empowering rights are often exploited. Social upgrading is about looking into more quantitative and qualitative entitlements for workers, including quality treatment of workers.

As both lead firms and suppliers have roles to play, the extra-firm actors are particularly useful in bridging the gap and highlighting where organisations can act more socially responsible and make a real impact in addressing working conditions globally. Research shows that were working conditions had improved particularly for women labourers, increased labour productivity and profitability was realized in the apparel firms in Global Value Chains.

Lead organisations in Global Value Chains should ultimately be responsible for satisfactory labour conditions and can partner with suppliers and extra-firm actors in highlighting any breaches and forcing transformation to take place as complying with work standards, acceptable workplace set-up and upgraded employee welfare are determining factors for comprehensive development, profiting both employees and organisations.

Tendai Tembo (MSc International Business and Management)