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Retail Wire Discussion: May 8, 2006

July 12, 2006  |  Share


Middle East Conflict: Trade and Retailing

[Scroll down for comments by those in the industry. Emphasis has been added by] 

By George Anderson

Jordan is one of America's greatest friends in the volatile Middle East region so it was not unusual that, in 2001, the U.S. signed a free trade agreement with the Arab nation.

The deal has proved beneficial for both nations.

Jordan has seen its exports of apparel to the U.S. grow "twentyfold in the last five years," according to The New York Times, while merchants in the U.S. such as Gap Inc., J.C. Penney, Sears, Target and Wal-Mart have found a new source to supply their stores with inexpensive clothing.

Now, however, charges that factory workers in Jordan are being forced to work excessively long hours for wages below what they were promised has brought the aims of the U.S. government in direct conflict with standards of labor practice that most merchants say they support and enforce.

Beth Keck, a spokesperson for Wal-Mart, acknowledges that abuses take place and that the retailer must continually be on the lookout.

"It is a continuous challenge, not just for Wal-Mart but for any company," she said. The most common problems the company found, said Ms. Keck, were companies failing to pay proper wages, forcing employees to work "egregious hours" and using false books or supplying insufficient data to try and get around the retailer's requirements.

The retailer has said that company inspectors recently identified serious labor violations at three factories in Jordan. In one instance, Wal-Mart stopped doing business with the supplier (Ivory Garment Factory) altogether.

Wal-Mart has said it intends to increase the number of surprise inspections it makes overseas and that it will continue to require suppliers to conform to local laws. According to the company's web site, Wal-Mart conducts more than 250 inspections of supplier factories around the world on a weekly basis. Charles Kernaghan, executive director of the National Labor Committee, said that retailers sourcing products will need to be more vigilant as mistreatment of employees has hit a new low in Jordan.

"These are the worst conditions I've ever seen," he said. "You have people working 48 hours straight. You have workers who were stripped of their passports, who don't have ID cards that allow them to go out on the street. If they're stopped, they can be imprisoned or deported, so they're trapped, often held under conditions of involuntary servitude."

Jordan's trade representative in Washington, Yanal Beasha, said that more is being made of this issue than should be. "It would be wrong to think that problems at a few places are representative of the 102 apparel factories in my country," he said.


Moderator's Comment: Can retailers improve the working conditions for workers in overseas factories without costing them jobs? Do retailers and the U.S. government need to work in concert together with the prospect of punitive measures against both individual violators (factories) and host countries (suspending trade agreements) if improvements in labor conditions are not made?

Wal-Mart has taken the position that there have to be limits on trying to find the lowest price. The company demands labor laws be observed and has even taken the step of requiring suppliers to meet environmental standards.

Last October, Wal-Mart CEO Lee Scott, said factories overseas are going "to be held up to the same standards as the factories in the U.S. There will be a day of reckoning for retailers. If somebody wakes up and finds out that children that are down the river from that factory where you save three cents a foot in the cost of garden hose are developing cancers at a significant rate so that the American public can save three cents a foot, those things won't be tolerated, and they shouldn't be tolerated." - George Anderson - Moderator

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We can't and should not impose our values on other countries. This is rude and arrogant behavior on the part of the USA. Working 48 hours straight might seem cruel to the average American citizen, however, this may very well be an accepted practice in other countries. As long as US consumers demand low prices from Wal-Mart and others, we cannot have low prices and luxurious working conditions overseas. If we want to continue doing business with overseas companies, we cannot expect them to conform to our customs and way of life, just as they would not expect us to become like them.  David Livingston, Principal, DJL Research

International sourcing is not as simple as giving a supplier a purchase order. First, there is the quality issue. It is common for each side to have a different definition for quality. Second is the time schedule. All too often, buyers think they are the only one placing an order. International sourcing does not result in order today and shipment in 3 days. Unless air freight is used, which is expensive, the goods must get into a container and the container onto a ship. In-transit times can easily be months, not days for international sourcing. The issue of slave shop working environments is common throughout the world. Simply having a paying job, even a very low wages, is superior to no job. The best case buyers can make is to set minimum worker standards adjusted to local conditions and culture. This case can be made on the quality component. If the purchase conditions are well defined, overworked employees will not be able to achieve the standard. This will cost the supplier more than paying fair wages, controlling hours worked and providing decent working conditions.  W. Frank Dell II, CMC, President, Dellmart & Company

It would be soothing to America's humanitarianism and sense of fair play if all countries believed in our projected cultural standards. For that to happen would require the standardization of man, which - we believe - would be called equality. But in today's global economy that isn't the case.

Offsetting our emphasis for fair working conditions (judged by our standards) is America's insatiable desire to consume all kinds of things at the low possible prices. And that creates a paradox. Cautiousness should be exercised by the U.S. as it tries to inject its standards into other cultures, which have captured much of what used to be made here at higher costs.

Moral: Pay more for goods or tone down our rhetoric.  Gene Hoffman, President, Corporate Strategies International

Those conditions are not cultural practices and values, they are inhumane practices. Justifying the mistreatment of people because of the American consumer's insatiable appetite for low prices is disagreeable and appalling. Companies continuing to conduct business with these manufacturers are encouraging these practices. Let the big dog stand up to them. There absolutely must be limits to finding the lowest prices. Matthew Werhner, Research Editor, Chain Store Guide

If the consumers who want low prices are the same people who are upset about working conditions, they may have to choose. In most developing countries, the most effective way to enforce quality conditions in contracts is to visit the factory frequently to see what is happening. If the contract also specifies a reasonable level of working conditions, that condition can be checked at the same time. If companies need to make the trip and do the tour to make contracts work, then using the same trip and tour to check on working conditions is not an unreasonable burden. Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

It's going to be hard to find many 3rd world locations that don't have sweatshops. We had sweatshops here and they serve a purpose. Sweatshop pay is low and conditions are bad, BUT sweatshops do provide a means of earning an income in areas of the world where the majority of people still utilize barter as their primary economic means. Barter is OK, but you can never acquire anything that your neighbors aren't willing to trade for your produce or skill. Currency allows the purchase of things like books, education, etc. that barter can't supply. As people in the third world work and save they accumulate some wealth (no credit cards there). This wealth is most often used to give their children more opportunity. You ask 100 illegals in the US why they are here and a five minute conversation will reveal that they are here because they want more for their children. The ignorance of our "do-gooder" mindset doesn't ever take into consideration the fact that economic development is a DEVELOPMENTAL PROCESS and unless they want to adopt one of the sweatshop workers and their families, they should limit their efforts to encouraging importers to raise the price of their goods and services (which will probably put them out of business). This might also have the effect of forcing the sweatshop to close or more likely move. Either way the poor workers will be out of a job and back to barter. Their children will grow up ignorant and become fodder for the next generation of sweatshops. Why doesn't anyone ever look at the whole problem? I guess it's just to easy to sip a Chablis and point a finger! Ed Dennis, president, Dennis Enterprises

Many low wage countries resemble open air slave labor prisons. How could better paying business owners in those places compete with slave labor suppliers? If there are no minimum standards of decency then all decent employers are jeopardized. It's unlikely that the US government will enforce any trade restrictions against conditions resembling slave labor. It's really up to the retailers, their customers, and investors to insist upon humane conditions. Any inspection scheduled in advance is likely to be worthless.

There's a classic scene in the movie Stalag 17 when the Red Cross visits the prison camp and the inspector remarks that the blankets smell of moth balls. The prisoners cannot speak out and the inspectors know that the Nazis running the prison camp prepared for the inspection. A prescheduled inspection is an invitation to defraud. Mark Lilien, Consultant, Retail Technology Group

My advice to Western companies establishing businesses in foreign countries is to treat local workers fairly. This means, in developing countries, paying them slightly more than the local average, and providing them with benefits which are a bit higher than local expectations. The benefits of such a policy are many: workers would get paid better than they would have had otherwise; Western companies would be encouraging local businesses to improve the wages of often underpaid employees; it's good PR for the company and its country of origin.

I was in Libya a few months ago. Talking to a number of Libyans, I gathered they think very highly of Canada and Canadians because they maintained "Canadian oil companies are the best oil companies to work for." As a Canadian, I felt good. Jerry Tutunjian, Editor, Canadian Grocer

I know I will eventually hate myself for this comment, but I really believe this should be a role of government. By that I mean, individual retailers should not be required to understand the labor laws and their enforcement in all the various countries around the world. It is the role of the CIA (post cold war) to understand the worldwide political, economic and social conditions. Maybe the CIA should publish a rating for the various countries and manufacturers so that retailers can publish a standard and then conduct their business based upon the CIA reporting. A retailer can state their policy - "We deal with Grade B Manufacturers," and consumers can make their own choice on where they want to shop. It might even be possible to offer consumers visibility to the ratings so that they can pick which manufacturers they buy from based on the grade. Bill Bittner, President, BWH Consulting

I think many of you are misreading the information. It is not U.S. companies attempting to exert our standards upon these nations. It is these companies requiring the companies to follow the letter of the law in THEIR country. If Jordan has established laws to provide a baseline level of treatment for their workers, it is not only acceptable for those who use Jordanian suppliers to require them to follow these laws, but I see it as the only ethical reaction to have. Yes, these workers may be happy to earn any wage at all, but 48 hour shifts and having their identification and documentation taken from them so they are unable to leave the factory does not seem likely to be the situation they signed up for. If it takes the economic power of U.S. industry to help force foreign manufacturers to follow the law of their land, then so be it. I can only imagine the owners of these operations are reaping great rewards from this labor. Allowing them to mistreat workers, which they could treat fairly while still making a profit, is wrong. That is a contributing factor to why most in these countries still use barter, because those with any wealth refuse to share any reasonable portion of it with those working for them. The government of their country has established a standard to be followed, and it should not be seen as invasive on the part of U.S. businesses to require they follow the law of their land, or lose the business. If Wal-Mart wanted to require U.S. minimum wage to be paid to all foreign workers, then, yes, many of you would have valid points. But that is not what is happening in this case. 'Pathy01'

Thank you, Matthew, I was starting to despair when I finally got to your comment. It is good not to be alone in this discussion. Some of our colleagues don't appear to think that economics and the old golden rule about doing unto others are compatible philosophies of life. Or maybe they just don't think that people in third world countries need to be treated fairly. I don't agree with Camille, however, about the effectiveness of factory visits.

There is much evidence that even surprise inspections can be manipulated. Shipping orders to countries that produce on the cheap will inevitably result in the worst possible practices, at least in some cases, and there is no way that they can be adequately policed. Obviously neither the employers nor the governments in the relevant countries believe that they can or should be, especially not by arrogant rich overseas customers. I think it is truly a case of buyer beware. If retailers persist in placing their orders in countries where they know that some employers mistreat their employees and take unfair advantage then they have no real excuse for denying their knowledge. Certainly they should continue trying to achieve higher standards but I don't for a minute think they will uniformly achieve that until the day we all start seeing beautiful pink pigs flying past. Or the US military patrolling (armed of course) to ensure that everyone follows the rules. Bernice Hurst, Managing Director, Fine Food Network

Did retailers cause the conditions out of their incessant greed and competitive drive to beat down the next guy with price? Or, did the American consumer cause the conditions by forcing the retailers to consistently deliver lower prices? I am sure it's a matter of perspective. However, I don't think that it was the consumer themselves that went to these types of sources to achieve the demand for lower prices.

I am not sure that the American government has a role in regulations within foreign countries. They do, however, have the ability to regulate imports.

I do think that there is mutual culpability here. One sort of feeds each other. The problem is that in order to have any effect on improvement, it would seem to me to also requires a mutual change in conscience taking place concurrently. The likelihood of that is slim to none.

It does seem ironic that the demographic hurt the most by the situation is most apt to be the highest consumer of the goods. Bringing about a change in that will be difficult, if not impossible, as the addiction is now set and fed by the 'pusher'. It appears to be truly another case where the words exiting the mouths of the retailer and the consumer do not match what is exiting their wallets. 'Scanner'

I have spent a fair amount of time in third world factories that supply large retailers. While I would not trade lives or paychecks with the factory workers, I also realize that their individual situations are improved by the opportunity to work there. I've seen the dorms, I've eaten in the cafeterias, and I know what they are paid.

Most of the workers in the regions I visit are in their late teens to mid-20's and the factory is not seen as lifetime employment. I would compare the living conditions to that of a US military enlistee without the physical demands. The employees work about the same number of hours per week as the typical US retail buyer.

I have not seen anything I would consider inhumane and have made the argument myself that these people would be much worse off without this employment opportunity; that the expectation of US wages and conditions would be unrealistic.

However, US retailers and suppliers must adhere to some basic standards. There is no need for a 48 hour continuous "work day", for example, and nothing close to that should be on the list of acceptable practices. Karin Miller, Principal, Miller Merchandising

I am shocked at what I have been reading! Some of you are talking as if it is the times of slaves and slave owners. Wasn't the mindset a few hundred years ago that slaves were meant for hard labor; that they are not people like the rest of us? Are the people overseas just slaves to you? Do they not have families that they love, children that they want to see grow up, religious ceremonies they want to attend?

It is true we cannot impose our values or culture on them, but we CAN and SHOULD apply the basic laws of humanity on them. I would not be proud to walk down the street in clothes made by someone's hands that have been worked too hard for 40+ hours in a sweatshop, where the only thing to look forward to is a short break before more work is expected, just as I would not be proud to say I have three slaves working in my house in this day and age.

People, we are all human and it is our duty to make sure that our companies are not outsourcing to inhumane factories. I agree with the Jordan representative that we cannot use three factories to judge over 100, but we do need to make sure that those few do not turn into more. Vasanti Ballinger, Trade Marketing Analyst, Tetra

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