Outsourced Manufacturing and Corporate Social Responsibility

Corporate social responsibility within the framework of outsourced manufacturing of any finished goods is possible.

Yes, recent history shines a damning light on the desperate plight of the world’d poorest who provide cheap labour for factories producing many of our branded consumer goods: El Salvador and the Kathie-Lee Gifford clothing line during the 1980’s provided our first peek; the sweater factory collapse in Dhaka in 2005; the Foxconn employee suicides protesting working conditions in 2010, & their association with Apple; the Pakistan factory fire in 2012 and more recently, the Bangladesh Rana Plaza facility collapse that implicated Canada’s Loblaws/Joe Fresh brand.

But the alarm, shock and call-to-action erupting from consumers may provide sufficient impetus for citizens to become informed as to the true human and ecological cost of cheap apparel and goods, and for brands to assume a leadership role in improving working and living conditions within those plants, rather than running away, like Disney did with its recent announcement.
Sunbeams Shifts Manufacturing to Asia:

Around the time I headed up Sunbeam’s Appliance business in Canada in the early 2000’s, the consumer goods industry underwent a seismic shift. The market transitioned from a brand-driven delivery of goods that served consumers needs and wants, to a marketplace model where the national or global retailers were in the driver’s seat.

Unless you could prove a core competency or enjoyed intellectual property in a particular product category, (such as Oster blenders or Sunbeam Mixmaster for our Sunbeam group), brand loyalty and relevance, retailer positioning, consumer price elasticity, and the psychology of consumption were re-adjusted, re-imagined and re-executed.

The WalMart’s, Zellers and Targets of this world established highly competitive category-managment-driven retail price modelling, rather than the old model of manufacturers suggested retail pricing based on cost achievement. Margins for most manufacturers with plants in North America and parts of Europe simply wouldn’t allow them to meet the new demands of the marketplace.

Survival of brands meant we went to Asia, where state investment in factories subsidized overhead and overall cost delivery of any finished goods. A toaster produced in Mexico may have cost $16, but only $3.75 in China.

Overseas low-cost manufacturing meant barriers to entry for most consumer goods dropped significantly. Retailers were able to pick and choose from a plethora of national brands and private label suppliers offering the right combination of features and benefits at relevant retail touch points. In some scenarios, retailers purchased directly from the Asian suppliers under the guise of ‘special buys’, a term now promoted regularly in stores.

In Sunbeam’s case, a buying office was established in Hong Kong during the mid 1990’s. That office was tasked with selecting existing factories that produced small appliances, and managing relationships with those factories. The first 5 years of shifting production from our own factories to China meant costly warranty issues. In the coffeemaker category alone we had quality issues netting 30-65% in returns, an embarrassing dilemma for a globally recognized brand.

Clearly, we needed a stronger corporate presence in Hong Kong, not only to manage the quality control issues, but to better implement a supply chain process. A senior executive moved to HK to establish quality control, engineering, supply chain and procurement teams. Within 18 months, direct oversight and inspection improved our quality issues. Weekly communication between each of the regions, the Sunbeam Hong Kong team, and representatives of the plants became standard practice, & soon a long-term vision for sound business investment in Asian production was incorporated within our overall global business plans.

Alternative Options

Other companies such as Gildan Activewear chose to purchase manufacturing facilities overseas, rather than simply outsource. With a commitment to adhering to the Fair Labour Association Standards, its compliance program is now accredited and recognized within the industry.

Umbra, another Canadian company, used to produce its goods in Scarborough but moved its production to its own facility in China and used additional facilities for some of its private label goods. Factory audits and inspections became a mandatory aspect of its business operations, leading to an improvement of working conditions and safety standards.

Incorporating Social Responsibility

Is there room for even greater improvement? Absolutely. Any corporate entity or brand can create a culture of social responsibility. It requires top-down, company-wide recognition and commitment to ensuring that all workers, whether their own or not, deserve not only to work in a safe environment as spelled out by international standards, but thrive in doing so.

Social Responsibility for Joe Fresh, Disney et al could incorporate any combination of the following within their outsourcing model: social responsibility leader tasked with executing social responsibility across vendor base; consolidation of the vendor base to a single digit number of facilities nets greater leverage to execute your safety standards; and commitment to re-invest 1% of your net margins in those facilities to:

  • develop company-wide, world-wide facility safety standards that meet those legislated in North America.
  • investments in training and development of plant staff to upgrade skills or for advancement.
  • establish objectives and key performance indicators for each facility, that each employee is aware of and strives for.
  • encourage efficiency suggestions and initiatives. It builds teamwork and stakeholder culture.
  • create bonus/profit sharing plan for all plant personnel when meeting those objectives.
  • offer educational upgrade support for all plant personnel.

These extensions of social responsibility offer good return on investments for any brand or business. Improved working and living conditions overseas make for loyal employees, lower turnover rates, less need for new employee training and less chances of product or company espionage.

Consumers also take notice. Brand loyalty and an inclination to pay a higher price for your products could mean you stand out in the clutter of the marketplace. Happy customers talk, tweet and share. And become repeat customers.
Isn’t that worth the price of social responsibility investment?

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Published by

Caroline Kalaydjian

In 2005, I left the corporate arena to assist small and medium sized businesses capture their vast potential. I encouraged owners and managers to incorporate agility, creativity, productivity and efficiency throughout their business operations. Today, I marry my concerns for ethical business, politics, socio-economics, youth advocacy, poverty, social justice, and geopolitics with my first love, that of writing. Both as a freelance business storyteller, on Business Architect, and in everyday analysis on this site, I hope to shed light on the converging threads that bind society to the every-day impact of decisions made in the public and private realms.

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