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.