Bringing sustainability to China

Apple seems to rarely get pad press but they had some this week that was actually of their own making.  The company released a report entitled “2010 Supplier Responsibility Progress Report” that detailed what the company learned by auditing the various suppliers that assemble Apple’s products.  Numerous violations were noted — or as ComputerWorld put it “Apple: Underage Workers May Have Built Your iPhone” (Feb 28).  That headline is somewhat overly alarmist.  It refers to eleven workers hired across three facilities that were 15 as opposed to 16.  Somewhat more widespread were violations regarding working hours, minimum wages, and benefits.  There was also less than perfect compliance with environmental standards.

This, of course, raises the question of what influence Western firms such as Apple have over their global suppliers. If local authorities are not enforcing minimum ages or minimum wages or environmental standards, will supplying firms care about audits from their Western buyers?  According to a recent article in the Washington Post, the answer is “yes” if the buyer is big enough (In China, Wal-Mart presses suppliers on labor, environmental standards, Feb 28).  First, some details on what Walmart means to China:

Wal-Mart has more than 10,000 suppliers in China. In addition, about a million farmers supply produce to the company’s 281 stores in China. If Wal-Mart were a sovereign nation, it would be China’s fifth- or sixth-largest export market. So the company hopes that small measures taken by all suppliers start to add up. Its 200 biggest suppliers in China have already trimmed 5 percent of their energy use.

So Walmart’s big suppliers are getting on board, but what does that mean for the rest of their supply chain.  Apparently, CEO Lee Scott has issued a warning:

In October 2008, Wal-Mart held a conference in Beijing for a thousand of its biggest suppliers to urge them to pay attention not only to price but also to “sustainability,” which has become a touchstone for many companies. “For those who may still be on the sidelines, I want to be direct,” Wal-Mart chief executive Lee Scott said sternly. “Meeting social and environmental standards is not optional. I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts will ultimately cheat on the quality of its products. And cheating on the quality of products is the same as cheating on customers. We will not tolerate that at Wal-Mart.”

So what sort of things are suppliers doing?  The article discusses the example of Lutex, a Hong Kong-based maker of soaps and cosmetics:

Lutex has been paying attention to more efficient light bulbs, better ventilation and less packaging. It switched from Styrofoam to recycled paper and saved enough Styrofoam to cover four football fields. And Lutex, which has been here since 1991, says it treats four tons of wastewater that it used to dump into the municipal sewage line. That water was supposed to be treated by the city, but like three-quarters or more of China’s wastewater, it almost certainly wasn’t. …

The company’s technology expert Alan Wong notes that Lutex has installed motion-sensor-controlled lights in its warehouse; captured waste heat and steam and reused it; installed a catalytic converter on its chimney to capture sulfur dioxide emissions; and upgraded motors for an energy saving of 30 percent. It also increased the energy efficiency of an assembly line for shrink-wrapping packages (eliminating the jobs of people who had wielded hair dryers to finish the work).

One could reasonably ask how much of this is window dressing and how much is real change.  The article mentions criticism from groups like China Labor Watch, which claims to have found labor abuses similar to what Apple reported.  There is obviously an issue of how you effectively monitor 10,000 retailers and all those farmers. Partially to counter such complaints, Walmart has begun using independent auditors as opposed to trying to do everything themselves.

It will be interesting to see how this all plays out.  As we have noted before, when Walmart does something it tends to reverberate.  There is the question of why they are doing this.  It would be nice to think that Walmart woke up one morning and realized that it should use its powers for good.  Realistically, I suspect that it was a mix of altruism and marketing combined with a desire to play offense rather defense on what they thought was going to be an important issue.  They are certainly moving the ball forward and may well reshape a number of industries and supply chains in the process.