Walk through Tong Yang Indonesia (TYI) shoe factory, an 8,500-worker complex of
hot, dingy buildings outside Jakarta, and company president Jung Moo Young will
show you all the improvements he has made in the past two years. He did so at
the behest of his biggest customer, Reebok International Ltd., to allay
protests by Western activists who accuse the U.S. shoemaker of using
sweatshops.
Last year, Jung bought new machinery to apply a water-based solvent to glue on
shoe soles instead of toulene, which may be hazardous to workers who breathe it
in all day. He installed a new ventilation system after Reebok auditors found
the old one inadequate. TYI bought new chairs with backs so that its young
seamstresses have some support while seated at their machines--and back braces
for 500 workers who do heavy lifting. In all, TYI, which has $100 million in
annual sales, spent $2 million of its own money to satisfy Reebok. But to
Jung's surprise, it was a sound investment. ''We should make it all back after
three years,'' he says. ''The workers are more productive, and the new
machinery is more efficient.''
WINDOW DRESSING. TYI's efforts show how much progress Western consumer
goods companies can make in cleaning up sweatshop conditions. In the early
1990s, many companies adopted codes of conduct requiring contractors to fix
harsh or abusive conditions. Based on recent visits to factories in Asia,
several companies--such as Reebok (
RBK), Nike (
NKE), Liz Claiborne (
LIZ), and Mattel (
MAT)--have finally
begun enforcing their codes in the past year or two.
In fact, more than a dozen companies have joined efforts to create an
industrywide system for verifying that consumer goods sold in the U.S. are made
under humane conditions. The most ambitious effort involves the Fair Labor
Assn., which grew out of a Presidential task force of companies and
human-rights groups. It plans to send outside monitors to factories worldwide
to ensure that they meet minimum standards on everything from health and safety
to workers' rights to join unions.
The problem is that such companies are the exceptions. Although many
multinationals operate facilities in Asia and Latin America that are as well
run as any in the West, far too many still buy from factories where practices
are appalling--especially in such labor-intensive sectors as garments, shoes,
and toys. And many companies that claim to adhere to labor codes are still in
the window dressing stage.
Then there are the tougher issues that even companies such as Reebok haven't
yet grappled with. How can companies respect workers' rights to collectively
bargain in China, say, which bans free unions and often doesn't enforce its own
labor laws, impressive as they are on paper? Nor have most Western companies
improved wages, which are often below what even governments like Indonesia
define as enough to support a family.
Investigators for U.S. labor and human-rights groups estimate that Asia and
Latin America have thousands of sweatshops, which do everything from force
employees to work 16-hour days to cheat them out of already meager wages, that
make products for U.S. and European companies. ''It would be extremely generous
to say that even 10% of [Western companies charged with abuses] have done
anything meaningful about labor conditions,'' says S. Prakash Sethi, a Baruch
College business professor who helped set up a monitoring system for Mattel at
its dozen factories in China, Indonesia, Mexico, and elsewhere. Abuses may
actually be proliferating. Price hikes in U.S. retail garments have lagged
inflation since 1982, and Asian factory owners complain they are under intense
pressure to find new ways to squeeze out costs. ''American retailers are
driving down prices, which ends up squeezing labor,'' says Robert Antoshak,
vice-president at garment industry consultant Werner International in Reston,
Va.
When accused by activists of buying from sweatshops, brand-name marketers have
tended to dismiss the claims. But there's reason to believe the activists are
often right. A recent BUSINESS WEEK probe found that Wal-Mart Stores Inc. (
WMT) bought Kathie Lee
Gifford handbags in a Chinese factory where guards beat workers and owners
deducted up to 70% of their pay for food and lodging (BW--Oct. 2). The National
Labor Committee, a New York watchdog group, first made that charge in a May
report on 16 Chinese factories used by Western companies. Each broke Chinese
labor laws or the buyers' own codes, it says.
Some of the U.S. companies cited in the report, including Timberland Co. (
TBL) and New Balance,
say they reexamined the Chinese factories and found most of the charges to be
accurate. But others, including Huffy Corp. (
HUF) and Stride Rite
Corp. (
SRR), refused to discuss the subject or let BUSINESS WEEK visit their
factories. Meanwhile, a yearlong study by labor experts from Harvard and four
other universities found that 13 factories making collegiate logo clothing for
U.S. companies in seven developing countries were guilty of nonpayment of
wages, lax safety, and excessive overtime.
TIP OF THE ICEBERG. Liz Claiborne Inc.'s attempt to improve conditions
at a factory in Guatemala shows how hard it is for companies to clean up
sweatshops. In 1998, the U.S. apparel giant began working with the Commission
for the Verification of Corporate Codes of Conduct (Coverco), a group of
Guatemalan and U.S. church and humanitarian activists, to monitor one of its
suppliers, identified by local sources as Choi Shin, a Korean-owned factory
near Guatemala City. Liz Claiborne released Coverco's report last year but
declined to give out the factory's name or let BUSINESS WEEK inside it.
Coverco found a litany of problems. Choi Shin couldn't refute workers' claims
that they didn't receive proper overtime payments or promised production
bonuses. Workers lacked adequate protection when handling hazardous chemicals.
Toilets and canteens were unsanitary. Some managers screamed at workers or
pressured those who complained to resign. And many women, who comprise 88% of
the plant's workers, said they were denied time off for doctors' appointments.
One pregnant worker who had a note from her doctor about a high-risk pregnancy
was not allowed to leave until five hours after she complained of pain. She
lost the baby.
Coverco says the plant is slowly improving due to Liz Claiborne's pressure. But
Choi Shin is the tip of an iceberg. ''The majority of [garment-exporting]
plants have similar problems,'' says Coverco general coordinator Homero
Fuentes.
The inability to form free unions means that workers often lack the leverage to
make much beyond subsistence wages. The Modas Uno Korea plant in the Guatemala
City suburb of Villanueva stopped paying workers on time in August and fired 22
who complained to the Labor Ministry. On Sept. 2, workers stormed the plant
demanding back pay--and the company relented. Workers who stayed on said they
were offered sewing machines instead of severance pay when the factory shut
down in early October. ''They make you work more hours than they pay you for,''
says Albina de Perez, a fired worker who earned $25 a week at the plant. No one
answered Modas' phone lines to respond to questions.
OUSTED MANAGERS. At least corporate responsibility programs seem to be
showing faster progress in some countries, such as Indonesia, where suppression
of labor activism has abated since the 1998 downfall of strongman President
Suharto. Golden Adishoes, a run-down shoe factory near Jakarta, agreed to a
host of improvements Reebok demanded as a condition for starting productioin
there last summer. And the monitoring team assembled by Baruch's Sethi brought
numerous changes to Mattel's two Barbie factories near Jakarta, clean and
air-conditioned facilities that employ nearly 12,000 workers. Last year, Mattel
removed hazardous solvents from the production process, says Tracey Rogers,
manager of one Barbie factory. Mattel also began promoting workers who pass
annual skills tests to higher-paying jobs. Rogers meets with 400 randomly
selected workers every other week to hear their concerns. ''I'll be honest,''
says Rogers. ''This process has been good for us.''
Even Nike, the bete noir of labor activists, is finally making changes. Take
Nikomas Gemilang, a sprawling, 50-building minicity near Jakarta that employs
22,500 workers making shoes for Nike and Adidas (
ADDDY). It is owned
by Taiwan's Pou Chen Corp., the world's largest shoe manufacturer. At Nike's
urging, Nikomas set a higher wage scale for senior workers and ousted managers
who had yelled abuses at workers. The factory also improved safety and food in
company dorms, which house 13,000 workers.
Pou Chen Chief Operating Officer Eric Chi says Nikomas is building a shopping
mall, hospital, cinema, and a day-care center, which is needed because 85% of
workers are female. ''We've heard about all this coming, and we hope conditions
here will be better next year,'' says Yune, a woman in her early 20s who has
worked and lived at Nikomas for five years.
Such improvements, however, are unlikely to quell Western protesters who insist
multinationals exploit workers. Only a few U.S. companies submit to independent
audits. And workers' pay, even if it's better than average for that country, is
still pitiful considering the nearly 40% gross profit margins Nike and Reebok
earn. TYI pays about 22 cents an hour, just over Indonesia's minimum wage. It
gets around $13 for every pair of shoes it makes for Reebok, paying only $1 for
labor. Still, TYI says that after paying for materials and overhead, its
margins are just 10%. It can't just hike its price to Reebok. ''They look for
suppliers who sell for the lowest price,'' says a TYI manager. ''If we aren't
cheap enough, they'll go to Vietnam or somewhere else.'' The big profits go to
shoe companies and retailers: The shoes typically sell for $60 to $70 a pair.
Given the huge oversupply of cheap labor in many developing nations, more
widespread gains in the workplace are unlikely until workers can organize
unions to demand changes--or unless there is a system to punish violators of
international codes. Even under the programs set up by Nike and Mattel, they
are free to sell their goods in the U.S. if it turns out they were made under
abusive conditions. But their experiments do suggest that not every factory has
to be a sweatshop to make the global economy work.
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2005, by The McGraw-Hill Companies Inc. All rights reserved.