It seems like more and more companies are pushing for more transparency in their suppliers’ operations. However, this trend goes against established practices in China.
It will obviously be a difficult project in a country where many businesspeople see their close network (guangxi) as their main asset, and where openness and honesty are viewed as signs of naiveté.
According to Transparency International’s standards, China does not rank well. For example, its budget openness is “scant to none”.
First example: Wal-Mart
A few months ago, Walmart adopted a ‘Zero Tolerance Policy’ on subcontracting, as a reaction to the last factory fire in Bangladesh (a supplier of Wal-Mart had placed production there without advising them).
The company says it will adopt a “zero tolerance” policy on subcontracting without the company’s knowledge, effective March 1. Previously, suppliers had three chances to rectify mistakes.
I am curious to see how many suppliers will be banned by Wal-Mart for their China production organization. I’d say, if less than 50% are banned in the first year of this policy, it will mean that Wal-Mart has not found out about the real situation.
“We want the right accountability and ownership to be in the hands of the suppliers,” said Rajan Kamalanathan, Wal-Mart’s vice president of ethical sourcing, said in an interview with The Associated Press. “We are placing our orders in good faith.”
Refusal of unauthorized subcontracting, in “good faith”? In countries like China and Bangladesh? Come on…
Second example: Toyota
The 2011 Japan tsunami did little damage (relatively speaking) to Toyota’s plants and Toyota’s suppliers’ plants, which are mostly around Nagoya. But, to their horror, they learned that many of their suppliers’ suppliers had been hit hard by the tsunami. As a result, hundreds of parts were suddenly unavailable.
They changed their policy to know precisely where their suppliers get their parts (from which sub-suppliers).
And Toyota is just an example. Many other multinationals have had to shut production lines for lack of critical components, and have also altered their policy in the same way.
It will be interesting to see how smart importers manage to get to know their supply chains in details, and what they do about this information.
I am also keen to see how this works out. Transparency is important. But nowadays, it requires hands on work from the buyer to secure and therefore adds to the TCO.
If big names like Walmart and Toyota can start a momentum in the right way, there will be some cleaning up in the market and it only can be good for all.
Yes. As usual, it will depend on where the power lies. A supplier that is much cheaper than his competition will just say “business secret, sorry”. Weaker suppliers will need to make an effort.
It will also depend on the way the buyer monitors what really happens. Many big buyers, especially American, are not very smart about this.
Are the “Wal-Mart’s” willing to pay more for this increased transparency? Is the customer willing to pay more at the store for the added goodwill that comes along with the product? No and No. Companies and consumers seem to forget that while they are pushing, picketing, and mandating for their products to come from more “ethically responsible sources” that means increased costs thus highter prices. Transparency, Social Compliance, and most importantly Sustainability aren’t FREE. Intense training, increased travel for suppliers, the constant monitoring thru audits and third-parties- those costs are absorded where on an already-barely-there margin. Sure, people feel bad when they read the “Apple / Foxconn” stories from their Iphone, Ipad, or MAC but let’s not pretend thats the reason for their plummeting stock. A story breaks, retailers scurry to come up with some impractical solution, hold a press conference to reveal their “new promises”, tightens the rein on suppliers, the public forgives them, and soon it dies until… until another “Bangledesh” occurs, then back around we go!
Right.
But my bet is that more and more pressure will accumulate over Bangladesh. More media attention means many more accidents reported… And that place is really terrible.
Just 2 days ago: an 8-storey building collapsed in Dhaka. It contained 2 sewing workshops.