Consumers are increasingly demanding from businesses that their supply chains are free from exploitation. A recent ground-breaking report from Asialink Business argues expectations of accountability over the labour practices of suppliers is adding to the complexity of doing business, especially in the Indo-Pacific.
Demands for greater transparency on labour practices across supply chains — especially in the Indo-Pacific — is creating challenges for businesses, most acutely those smaller enterprises that struggle for full visibility of their overseas suppliers. But they also create new opportunities for businesses that can distinguish themselves by demonstrating ethical practices.
An estimated 25 million people across Asia and the Pacific are subject to labour conditions that render them effectively enslaved. In 2019, Australia passed the Modern Slavery Act, which requires businesses with revenue over $100 million to report against risk criteria for slavery across their supply chains. This law pushes businesses to be more transparent and provide consumers with benchmarks to inform purchasing decisions. Even though modern slavery legislation is a recent development, an Asialink Business survey found 71 per cent of businesses with supply chains across Australia and Asia believe it is a significant concern for their customers.
Asialink Business/Toll Group research emphasises the importance of greater transparency, and the removal of worker exploitation in supply chains, to consumers. Image credit: 'Disruption & Innovation: Reshaping Regional Supply Chains' – Asialink Business and Toll Group.
Business is responding to consumer expectations by pledging greater transparency but it can be difficult to monitor practices. Most companies do not deal directly with all the firms in their supply chain nor do they have contractual ties with the suppliers of their suppliers. One company’s business may represent a small portion of their supplier’s revenue, limiting their ability to influence when the supplier’s bigger customers have differing standards. A 2018 McKinsey study of the supply chains of three multi-national companies considered to be ’sustainable leaders’ found that all ten lower tier suppliers in China and Taiwan had marginal environmental practices, dangerous working conditions and chronic overtime issues. Even in countries with more developed regulatory frameworks like the US, low tier suppliers were found to have sustainability and safety issues.
Companies’ inability to track their supply chains is a common cause of non-compliance with regulations and reputational damage. A survey by the Sustainability Consortium reported that less than 20 per cent of respondents had a comprehensive view of sustainability along their entire supply chain. Better supply chain visibility and a willingness to impose standards are needed if businesses want to meet evolving consumer demands.
Companies with experience in labour practice due diligence have been best able to adapt to new legislative requirements. Big W, which is part of the Woolworths Group, for instance, has incorporated human rights due diligence within its supply chain based on an approach developed over decades to identify risks and audit suppliers. It was able to respond quickly to manage risks to workers in its garment supply chain in Bangladesh early in the COVID-19 pandemic. Woolworths instituted virtual site visits to ensure safety standards were being met, provided care packages to support people working from home and reduced payment terms for suppliers to 30 days.
Small businesses are also embedding sustainability considerations throughout their extended supply chains. Outland Denim, an Australian company that was established in 2011 to provide employment opportunities to vulnerable people in Cambodia, won the Thompson Reuters Stop Slavery Award in 2020. The company established a program to identify and resolve instances of unsafe working conditions and exploitation in its cotton farm suppliers in Turkey. Its ethical approach has been proven to deliver profits.
While they differ in scale, both Woolworths and Outland Denim have worked extensively with supply chain consultants to ensure greater visibility. For both companies, engaging expertise is key not only to ensuring they comply with regulation, but can also reap the reputational benefits of being able to promote supply chain transparency.
David Murphy is Senior Associate, Advisory and Insights at Asialink Business.
Banner image: Mengniu Dairy production line, Luannan County, Hebei Province, China - October 21, 2016. Credit: Yuangeng Zhang, Shutterstock.
Read the full Disruption & Innovation: Reshaping Regional Supply Chains report on the Asialink Business site.