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Labour standards remain critical risk for firms manufacturing in China – new Maplecroft report

28/07/2010

A recent spate of stories focusing on electronics companies with manufacturing operations in the Special Economic Zones (SEZs) have highlighted poor labour standards and reputational risks relevant to all multinational corporations with subsidiaries and supply chains in China. Moreover, with increasing unionization, worker protests and management initiative, wages and working conditions are being addressed, with some positive results albeit with cost implications for business.

The most high-profile situation concerns Foxconn, the world's largest electronics contract manufacturer that makes iPhones and iPads for Apple, computers for Dell and other high-tech devices for well-known companies. During 2010, various sources raised concerns about the working conditions for young workers at the Foxconn factory in Shenzhen, where it is reported that 12 workers, aged around 20 years old, have committed suicide since the beginning of this year.

An undercover investigation by a journalist into the suicides at Foxconn found that most employees "do not make a living," so are forced to work overtime. Every month each employee would sign a "voluntary overtime affidavit" waiving the 36-hours legal overtime limit, per month, so that they could earn a living wage. Other organisations have also criticised Foxconn's business practices in the past. China Labor Watch has long reported on sub-standard working conditions at the factory, saying that employees work "punishing hours".

Localised labour rights and protection risk profile

To prevent reputational damage Foxconn announced, on 1 June that it would increase its pay by 30% and then, on 7 June to 70%. According to a statement from the company, this is to lessen pressure on workers to do overtime. Further to this, Apple, in its Supplier Responsibility 2009 Progress Report published in July 2010, disclosed that some of its supplier factories had breached labour standards and were instructed to take corrective action.

A report published in January 2009 by the US-based NGO National Labour Committee (NLC), entitled "High Tech Misery," also reveals sub-standard working conditions in plastics and electronics factories in Dongguan. The report claims that employees are forbidden from going to the restroom or talking to colleagues. Workers are also fined for being one minute late and work an average of 81 hours per week, sitting on wooden stools with no backrests. The NLC also alleges that other electronic factories submit young workers to similar conditions as Foxconn. These include: KYE systems, which makes computer mice for Microsoft, and Meitai Plastic and Electronics, a Chinese hardware factory which creates keyboards for IBM, Dell Lenovo and HP.

In response, most companies sent a statement saying that they supported good labour practices and a third party audit to be undertaken by the Electronic Industry Citizen Coalition, which promotes an industry code of conduct for global electronics supply chains to improve working and environmental conditions.

According to Maplecroft's report, the SEZs are well-known for their ability to attract foreign investors because of tax incentives and a large pool of cheap labour. However, SEZs are also subject to a prevalence of labour rights violations due to weak enforcement of labour laws. This can be attributed to underfunded, untrained and sometimes corrupt local labour departments not having the resources to monitor workplaces properly.

"China is rated extreme risk in Maplecroft's Working Conditions Index and is ranked 7th out of 196 countries," said Maplecroft labour rights expert, Monique Bianchi. "Companies must perform due diligence when sourcing from local suppliers, especially in high risk regions including Dongguan and Shenzhen. These suppliers may ignore or attempt to circumvent labour laws. Such tactics can include avoiding labour laws by reducing overtime pay or using doctored contracts that employees do not understand."

Maplecroft's 'Labour Standards Report - China' contains in-depth analysis for all major labour issues including: working hours, compensation, health and safety, freedom of association, labour contracts, discrimination, migrant workers, forced labour and child labour. In addition, country scores and trends are provided by Maplecroft's labour rights and protection indices, plus sub-national maps of labour rights infringements, key recent events and stakeholder viewpoints are supplied.

Labour standards reports are available for all countries and sectors. For more information and pricing contact info@maplecroft.com or visit http://www.maplecroft.com/portfolio/labour_standards/reports/