1. CSR
“ The strike itself was
not all that different
from others where
workers were expressing
their dissatisfaction.
But the fact that this
strike was not the first
one to hit an Apple
supplier should have
propelled management to
immediate action, not just
as a feel good measure of
corporate responsibility,
but because there was a
real risk to damaging the
brand and global sales.
”
Coming to terms
By Richard Brubaker
with the true costs I
n the run-up to Apple’s recent launch
of the iPad, the focus of the media,
analysts and consumers was on
whether the new product would become a
of outsourcing
replacement for Amazon’s kindle; whether
consumers would accept the addition of
a new device, and what content would be
made readily available. Eight thousand
miles away the story was very different, as
2,000 workers at Apple’s Suzhou-based
supplier, Wintek, were on strike and the
production lines were idle.
A mix of rumours on the reasons behind
the strike action circulated, including that
staff had been exposed to toxic substances
and that Wintek had failed to pay overtime
salaries. The problems at the supplier
should not have come as a big surprise to
Apple – the company’s own 2009 supplier
Firms need a new approach to responsibility report revealed that more
than half (43 of 81) of their China-based
developing outsourcing models
suppliers were not in compliance with
which takes into account the company directives.
risks to brand and reputation
that hide beneath lower cost Economic and moral balance
production in regions like Asia For many, corporate social responsibility
(CSR) has had the look and feel of a fluffy
add-on; something to be done when extra
18 Supply Chain Asia May/June 2010

2. CSR
money was in the bank or when a little Why is this the case? Because a firm steps to remove the risk of economic,
extra brand value needed to be created. that has a core of responsible decisions and environmental, and social failures.
It has not been seen as an investment practices has a much better understanding Once ownership of the risks has been
in products, processes and people that of real costs and – unlike firms that accepted by the brand, the next step is to
create sustainable businesses, or as a act irresponsibly through graft, labour/ work out where those risks lie, and where
strategic counter-balance to the negative environmental abuse, and so on – is not the exposure points exist. Firms needs to
externalities that many expose themselves relying on anyone to subsidise negative ask whether the main threats are found in
to when outsourcing production to another externalities. At some point, firms that environmental, labour, product quality, or
country. While consumers on the whole ignore CSR will be forced to move into other areas, and what the relationships are
may not understand the complexity of a compliance and pay the real price for between these issues and stakeholders?
supply chain, or have a direct personal what they do. The question at that point They need to ask will it be a government
connection to the labourer who assembled is whether or not they can continue to official upholding a regulation; a blogger
their product, they do have a line, and they compete on the new cost basis. exposing an environmental failure; a line
will increasingly walk away from firms that In the article ‘Why Apple can’t control worker who falls ill, or a consumer who dies
break the unwritten and written codes. This its Chinese factories’ it was recently that will expose the problem?
is a fact that some firms have lost sight reported by Malcom Moore in Britain’s
of over the past 18 months as the global Daily Telegraph that the company was Low cost does not always mean full
recession took hold. powerless to make a change in suppliers cost
For Apple, the strike itself was not all when an employee committed suicide at Outsourcing a component, or a process,
that different from others where workers Foxconn’s Suzhou facility because, “it is to a firm may bring immediate economic
were expressing their dissatisfaction. But the triumvirate of big suppliers who are in benefits through economies of scale, by
the fact that this strike was not the first charge of running the system day-by-day. If allowing organisations to focus on core
one to hit a supplier of the global computer Apple tried to take its business elsewhere, activities, or by savings from lower labour
brand should have propelled management it would risk losing its entire supply chain”. costs. But firms should never assume
to immediate action, not just as a feel good If there is indeed something here, it signals that these reduced costs, as quoted by
measure of corporate responsibility but the labour woes are symptomatic of a much an external firm, somehow represent
because there was a real risk to damaging wider supply chain management issue, the full costs of the move from in-house
the Apple brand and global sales. and highlights once again why firms need operations to outsourced operations, and
Yet the conditions did not garner the to reassess how their supply chain models
‘red alert’ one might have expected, and are constructed, this time with CSR and
within six months of the release of the sustainability in mind.
supplier responsibility report, news of a
Foxconn employee committing suicide
threatened to become a commercial issue
for Apple as it highlighted the problems the
The brand carries the risk
It should be abundantly clear that regardless
of whether a supplier has produced to
“ Regardless of whether
a supplier has produced to
spec or failed to produce
company was facing with its suppliers. spec or failed to produce to spec, it is
For those who would suggest that ultimately the brand that carries the risk.
to spec, it is ultimately the
companies should work to find a balance Nike, Mattel, Toyota and many others brand that carries the risk.
between economic and moral imperatives, have all learned this lesson the hard way. Nike, Mattel, Toyota and
what we are finding is that it is the firms It is an expensive lesson to learn, and one others have all learned this
”
who act morally that perform the best that others should take note of. Brands,
economically over the long-term, and those not suppliers, ultimately carry the risk
lesson the hard way.
with the least moral imperative are more of CSR failure in supply chains, and it is
often the first to exit the market. their responsibility to take the necessary
May/June 2010 Supply Chain Asia 19

3. CSR
should understand that at some point these invest in mitigation of negative externalities
“
excluded costs will be incurred. related to their outsourced supply chains
Perhaps it will come in the form of and do not account for the risks of when
We abide by all local
the complete loss of control over one’s intangible negative externalities turn into standards” is something
supply chain, or through the erasure of very real economic costs. that one can commonly
brand equity that a firm has worked years hear when firms are
to develop through a labour scandal or Building a sustainable supply chain
a weakened quality control process that model defending themselves,
results in product failures. Either way, it is While the process of developing a but how often can you
imperative that firms begin to understand sustainable supply chain model may for remember when a firm
that low cost does not equal full cost and some begin with a CSR or sustainability said: “We have a global
that costs need to be incurred to protect programme, or may simply require a firm
the integrity of the supply chain. to add those lenses, at the end of the day
standard in place, a
the issue for firms is ensuring economic standard that did not meet
Risk and responsibility are not mutually
exclusive
“We abide by all local standards” is
and market sustainability. Like any other
sustainable competitive advantage, it is a
process that engages the entire organisation
the local conditions”?
”
something that one can commonly hear through a change in core values and drives
when firms are defending themselves. decisions that will return favourably Knowing the risks of outsourcing and off
How often can you remember when a firm internally and externally to the firm. shoring, do the benefits still outweigh
said: “We have a global standard in place, Unlike a traditional model, where the costs? Are there ways to reduce those
a standard that did not meet the local immediate gains are logged without a full risks upfront so as to ensure the long-
conditions”? understanding or recognition of how those term economic viability of the model and
For many firms, outsourcing the savings may require a top-up investment process?
production of a product or process – all of unknown proportions, a sustainable
or part – is in some ways liberation. Not model is one that anticipates early and Mature approach
only are cost savings gained through the plans around the unexpected. It is a Moving beyond the standard moral
process, but someone else also owns risk process that removes long-term risk to the reasons for developing a new approach
of a failure – supply chain failures become system, develops strength in supply chain to outsourcing that is compliant with the
the product of China’s poor quality control and distribution channels, and maintains wider needs of the economy, environment,
systems. brand equity. It is a process that ultimately and society, there is a very strong business
The shift in responsibility here is returns higher profit margins and satisfies motive for doing so. Firms are no longer
of course an illusion, as the aftermath consumers and investors. simply outsourcing their products, they
of cases such as the Mattel recall have Building a sustainable outsourcing are trusting partners to safeguard their
conclusively proven. The risk of supply model requires development of a supply brand and the availability and safety of
chain failure rests squarely with the brand chain that incorporates the value and the product.
and firms that disregard the arbitrage risks of negative externalities that may While developing the case for an
between the standards at home and those return in the future. For some that will offshore or outsourced production model,
in another location will run into issues mean understanding the costs and risks firms traditionally only looked at bottom
going forward. associated with working with a country line cost savings and will have to take a
or company that does not have the same much more mature approach to making
Mitigating negative externalities will cost level of environmental or labour controls these decisions going forward so as to
the brand much less in the long-term in place, which has created temporary ensure their place and success in the
Mattel’s original recall of product was arbitrages that will be removed over time. market.
initially estimated to cost $20m in product The next step is to understand how
and logistics costs, a figure that inflated quickly and in what manner those arbitrages Richard Brubaker is the Shanghai-based
into the hundreds of millions of dollars will be removed. Will it come through a new CEO of Collective Responsibility and Visiting
as fines were levied, class action suits regulation and/or increased enforcement Professor of Sustainability at the China Europe
settled, and market competitiveness lost. of current regulations that will force the International Business School
Why Mattel didn’t make the decision to supplier to invest in new equipment?
invest $20m into supply chain integrity Will it come in the form of a news report
is a simple function of not properly highlighting the abuse of workers in the Additional resources:
International Labor Organization (http://www.ilo.org) – Works
understanding and planning for the risks same factory you have outsourced to, and between NGOs, corporations, and government agencies to
of the outsourced supply chain, and an the potential for consumer actions that promote best practices in labour standards
unwillingness to invest in a system upfront have been proven to cost firms billions in Ethical Corporation (www.ethicalcorp.com) – Monthly
magazine promoting responsible business decision
to mitigate those risks. In hindsight, it lost revenue and brand value? making
was a bad calculation. Many firms fail to After that the assessment begins. Business for Social Responsibility – (www.bsr.org)
20 Supply Chain Asia May/June 2010