Global Supply Chains: 430 00 hits

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FES Workshop on Global Supply Chains, Geneva, 21 January 2014

Expert Workshop: Global Supply Chains – The Regulatory Dimension (revised and expanded version)

Geneva, 21 January 2015

What are we talking about? What do we know? What are the challenges? How to address the challenges? Roland Schneider, TUAC


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OECD, WTO and UNCTAD – among the leading GVC promoters


No hits regarding "Labour unions and Global Value Chains„ or „Trade unions and Global Value Chains “ However, 55,900 results for ‘trade unions+”global suppl ychains” 9 600 hits for „Labour in Global Value Chains“

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(I) Investopedia

DEFINITION of 'Supply Chain'

• A supply chain is the network created amongst different companies in order to design, produce, handle and/or distribute a specific product or service.

• Specifically, the supply chain encompasses the steps it takes to get a good or service from the supplier to the customer.

• Supply chain management is a crucial process for many companies, the aim is to lower costs for the company.

• In GVCs lead firms control and co-ordinate activities among buyers and suppliers, and multinational enterprises (MNEs) – brands like Nike, Apple or H&M - play a central role.


Why have GVCs emerged? GVCs are responses to

• the exhaustion of Fordism,

• the need to search for new markets,

• the pressures of financialisation and short-termism.

The diffusion of GVCs has been facilitated by

• the liberalisation of trade and investment (which in turn increased the availability of low-cost labour);

• technological advances, in particular the development of ICT, leading to lower transport and communication costs.

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GVCs are new drivers of corporate profitability.

The fragmentation of production in GVCs is a means of lowering production costs and increasing productivity, competitiveness and thus profitability.

GVCs also affect the labour market,

• in particular the global and regional structure of employment,

• the employment relationship,

• working conditions as well as

• workers rights


The OECD has constructed a GVC participation index

It indicates the extent to which a country is involved in a vertically fragmented production process.

It distinguishes the use of foreign inputs in exports (backward participation) and the use of domestic intermediates in third country exports (forward participation).

The index of the number of production stages shows how long global value chains are and also highlights the domestic and international part of the value chain.

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Small open economies such as Luxembourg, the Czech Republic and Slovak Republic mostly source more inputs from abroad in GVCs than large countries, such as the United States or Japan


Length of GVCs by industry, 2008

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Evolution of GVC jobs 1995-2011

Advanced Economies

Developing Economies

Transition Economies

World

New GSC jobs (millions)

14 48 3 65

GSC jobs percentage growth

30 37 37 35

Total employment 1995 (millions)

420 1350 34 1804

Jobs growth due to GSC

3.3 3.5 9.4 3.6

GSC job share 1995 11.0 9.5 25.4 10.2

GSC job share 2011 13.0 10.6 33.8 11.5

Source: ILO Research Department based on WIOD; © R Torres.


Development of jobs across GSCs – Key features

• Strong increase in GVC related jobs until 2007, since then rather slow

• Stronger growth of service sector jobs related to GVC, especially in advanced economies

− Many countries move out of manufacturing GSC.

• Employment share in manufacturing related to GVC increases despite overall fall in its share.

© R Torres; ILO


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GVC participation and the labour component of domestic value added, 2010


Growth of the labour component of domestic value added in exports, by level of GVC participation growth and foreign value added


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GVC participation, job creation and employment quality

Employment in GVCs provides often insecure incomes and job prospects for workers. Participating countries face a number of potential employment-related risks:

• Pressures on costs from global buyers mean that GVC-related employment can be insecure and involve poor working conditions.

• Some GVC activities are footloose, and relocation can lead to a decline in local employment. MNEs have more options for switching production between countries than most domestic firms.

• Export-oriented employment in general is more subject to fluctuations in global demand and supply, and therefore influenced by factors occurring far from where employment takes place.

• For subcontractors at the end of the value chain, which are often used as “pop-up” suppliers to provide additional capacity, these fluctuations in demand are particularly harmful as they are the marginal producers whose output is most likely to be cut.

Source: UNCTAD WIR 2013, p. 158 ff

Neglected: Gender discrimination as an instrument of labour flexibilisation


GVC participation, job creation and employment quality and wages


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GVCs differ depending on the sector or industry

Both large and small firms are involved, with important differences between chains that are buyer-driven…

Global value chains involve different types of firms.

Some chains are “buyer-driven” and have developed around large retailers such as Wal-Mart or highly successful brands such as Nike. Products in such chains are often relatively simple, e.g. apparel, housewares and toys; manufacturing such products requires relatively little capital and few skilled workers.

…and those that are producer-driven and involve complex products.

Producer-driven GVCs are found in high-technology sectors such as the semiconductor, electronics, automotive or pharmaceuticals industry. As these industries rely heavily on R&D and technology, large manufacturing firms control the design of products and most of the assembly.

Technology (including design, etc.) and production expertise are core competencies and are often developed by lead firms or captive suppliers that can be prevented from sharing technology with competitors. MNEs play a major role in these networks.


THE GOVERNANCE OF GLOBAL VALUE CHAINS In the network forms of GVC governance, the lead firm exercises varying degrees of power through the coordination of suppliers without any direct ownership of the firms: Market governance involves transactions that are relatively simple. Suppliers can make products with minimal input from and little coordination with buyers. Price is the central governance mechanism. Modular governance emerges when suppliers make products to a customer’s specifications that are complex but relatively easy to codify. Relational governance exists when buyers and suppliers rely on complex information that is not easily transmitted. Frequent interactions and knowledge sharing based on mutual trust and social ties between parties are critical in coordinating relational chains. Captive governance is characterized by a group of small suppliers that are dependent on one or a few buyers in their resources and market access. Hierarchical governance describes chains characterized by vertical integration and managerial control within lead firms that develop and manufacture products in-house.

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Five types of GVC governance


The apparel global value chain

Over time, the national structure of manufacturer-driven value chains has given way to increasingly fragmented production systems in globalized buyer and retailer-driven value chains. Today, the apparel global value chain (GVC) is organized around five main segments.

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Global Supply Chains in apparel – impact on workers Shorter lead times, more styles, and more volatile orders in the global apparel industry, facilitated by new technology and ever shorter fashion seasons, have led to the emergence of new “fast fashion” systems like the one implemented by Zara. Their most direct impact is in the area of working hours; forced, excessive, and inadequately compensated overtime is an endemic problem in the global apparel industry. Many supplier firms prefer to operate with a small workforce and demand that these employees work excessive hours during periods of peak demand


A particular feature of Global Supply Chains: Contract labour (I) Contract workers – that is, workers employed by a third party rather than directly by the factory or enterprise where they work – are commonly found in many global garment supply chains Why Suppliers Use CL (Key Drivers) Key reasons why suppliers choose to rely on labour contractors rather than employing these workers directly include:

· poor regulation of labour contractors · increased access to flexible labour · reduced hiring and firing costs · ability to restrict worker organization and collective bargaining · receipt of financial incentives from labour contractors

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A particular feature of Global Supply Chains: Contract labour (II) Problems experienced by contact workers s Available evidence indicates that all types of CWs commonly experience: • lack of payment of social security and other non-wage benefits • low/sub-minimum wages • lack of clear or written employment contracts • lack of paid leave and weekly rest days • reduction of pay through illegal deductions and other forms of

deception • restrictions on trade union rights • excessive working hours, compulsory overtime and lack of

appropriate overtime compensation • verbal, physical and sexual abuse • poor health and safety standards


A particular feature of Global Supply Chains: Contract labour (III) Examples of migrant and contract labour in global supply chains

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A particular feature of Global Supply Chains: Contract labour (IV)

Standards, monitoring and campaigning are indispensable

Apple’s Supplier Responsibility 2015 Progress Report

Eliminating recruitment fees….

(…) Some suppliers turn to third-party recruiters to secure contract workers. These third parties may charge excessive recruitment fees to foreign contract workers in exchange for jobs. Doing so creates an unjust system that places contract workers in debt before they even begin their jobs.

To protect foreign contract workers, Apple required our suppliers to reimburse US$3.96 million in excess fees to over 4500 foreign contractors in 2014, bringing the total reimbursements to US$20.96 million to over 30,000 foreign contract workers since our program began in 2008. (p. 18)


Unit Price of U.S. Apparel Imports and Labour Rights

Performance among Leading Exporters

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The growth of the apparel supply chain


A buyer driven global value chain: Nike

Source: WSJ, April 21, 2014

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The mobile phone global value chain (GVC) – includes - from product conception to after-use – the following major segments: input materials; hardware manufacturing; software development; sales and marketing; mobile service and use; and after-use (deposal).

It is unique because it combines hardware and software, and it has become truly global.

It encompasses American IT-engineers, African miners (for key input materials like coltan), young migrant assembly workers in China, to software developers in India, and salespeople across developing countries


The mobile phone global value chain

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Global value chain in electronics – the iPone 4 as an example

The iPhone 4 example is based on a teardown analysis; only taking into account components; it does not include other expenses such as manufacturing, software, royalties and licensing fees


The mobile phone global value chain

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Apples suppliers and final assembly facilities


Employment in GSCs: Apple as a case in point

Apple employed in 2011 about 43,000 people in the US and 20,000 overseas.

Many more people work for Apple’s contractors: an additional 700,000 workers engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. NYT, January 21, 2012

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Apple’s Supplier Responsibility 2015 Progress Report

Accountability Highlights from our 2015 Report

In 2014 we performed 633 audits covering over 1.6 million workers

In 2014 we audited suppliers in 19 countries

In 2014 calls were made to 30,000 workers to make sure their rights were being upheld


A supply chain in the Agro-Food industry: The Nutella® global value chain

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Typology of workforce composition across different GPNs


Facilitating the diffusion of global supply chains:

The OECD & World Bank approach

Participation in value chains requires a conducive business environment

To benefit from value chains requires high-quality infrastructure, …adherence to international standards and well-developed ICT networks… …as well as "soft" infrastructure, such as sound legal systems and good governance.

Investment in knowledge-based capital and skills is an important determinant of value creation in a GVC…

The costs of adjustment can be mitigated by sound labour market and skills policies

Participation in GVCs inevitably involves the reallocation of resources and the displacement of workers…

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A business voice, calling for economic upgrading

U.S. Chamber of Commerce

Global Supply Chain, Customs and Trade Facilitation

The Chamber’s Plan to Modernize Global Supply Chains

Promote trade facilitation and customs modernization to enable the efficient movement of goods through the global supply chain.

Promote global convergence of cross-border transportation, security, customs processes and regulation

Aggressively respond to regulations and legislation that restrain supply chain facilitation and trade.

Work with the US Trade Representative, all countries in the negotiation, and member companies to promote trade facilitation, efficient supply chains, and rational customs principles into the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership and the World Trade Organization’s Trade Facilitation Agreement.


Defining economic upgrading Economic upgrading is defined as ‘the process by which economic actors – firms and (as is hoped) workers – move from low-value to relatively high-value activities in global production networks’. There are four types of economic upgrading, each with different implications for skill development and jobs: (i) Process upgrading involves changes in the production process with the objective of making it more efficient; this could involve a substitution of capital for labour and hence a reduction of skilled work. (ii) Product upgrading, where more advanced product types are introduced, which often requires more skilled jobs. (iii) Functional upgrading involves firms changing the mix of activities performed towards higher value added tasks [via vertical or via specialization]. Both involve new worker skill sets. (iv) Chain upgrading, or shifting to more technologically advanced production chains, involves moving into new industries or product markets.

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Social upgrading is the process of improvement in the rights and entitlements of workers as social actors, and enhances the quality of their employment and work. This includes access to better work. But it also involves enhancing working conditions, protection and rights. The concept of social upgrading is framed by the ILO decent work framework, which is constituted by four pillars: employment, standards and rights at work, social protection and social dialogue. Social upgrading aimes at the promotion of work taking place under conditions of freedom, equity, security and human dignity, in which rights are protected and adequate remuneration and social coverage is provided.


There is no automatism between economic and social upgrading

It is often assumed that economic upgrading in GSCs will automatically translate into social upgrading through better wages and working conditions.

However, case studies provide a more mixed picture. While social upgrading can be the outcome, there is no evidence that this necessarily follows.

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Social upgrading

as a ‘top-down’ conception

• of improving workers’ conditions to be delivered by collaboration between ‘elite bodies’, in particular firms, states and international organizations.

or

as a‘ bottom-up’ conception,

• based on workers’ actions and trade union engagement at the company / local level; shifting the emphasis from institutional arrangements to the labour process

B Selwyn


Which factors impact social upgrading?

• Fluctations and instability in value chain

– Fluctuation in demand and order instability in value chain impact on excessive hours and irregular contracting

• Skill development impacts on upgrading towards advanced product types, new tasks or new value chains

• Organisation at the regional level where factor endowments are complementary.

© R Torres, ILO


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Requirements for social upgrading FES Workshop on Global Supply Chains, Geneva, 21 January 2014

• Overcoming the growth of private regulation of labor standards in GVCs

• Strengthening public inspection, monitoring and enforcement of standards along the GSC – lower tiers of the supply chain are often under less

scrutiny, particularly when government capacity is weak.

• Giving workers and their unions a voice – Collective bargaining in the flower and cutting GSC in

Uganda is an example which led to better wages, OHS, respect for rights


Self-regulation or private regulation of labour standards in GVCs is failing (I) A lack of strong regulatory mechanisms at both the national and international levels to govern global firms and markets, and a decline in state controls over business following privatization and deregulation, have led to self-regulation and private regulation of labour standards in GSCs The Business for Social Compliance Initiative (the BSCI), a business-only Initiative, is one of the many examples of international private business self-regulation efforts. In general BSCI members ask their suppliers to meet BSCI requirements but do not work with them to ensure compliance. Large firms have increasingly shifted the responsibility for meeting BSCI requirements onto their suppliers. In this way, large buyers expect to be ‘‘off the hook’’ if their suppliers are found to be violating basic labour rights.

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Self-regulation or private regulation of labour standards in GVCs is failing (II)

By creating its own platform for compliance, the BSCI tries to simultaneously resist pressure from above by EU-Institutions and pressure from below by civil society groups and unions.

Initiatives such as the BSCI that leave regulation to business actors are ending up leaving the fox to guard the henhouse

Increase in BSCI membership 2003—February 2012


Self-regulation or private regulation of labour standards in GVCs is failing (III)

Factory monitoring companies have established a booming business. Each year, these monitoring companies assess more than 50,000 factories worldwide that employ millions of workers.

An extensive examination by The New York Times reveals that the inspection system intended to protect workers and ensure manufacturing quality is riddled with flaws

The inspections are often so superficial that they omit the most fundamental workplace

safeguards like fire escapes.

And even when inspectors are tough, factory managers find ways to trick them and hide serious violations, like child labour or locked exit doors. [managerial failure (lack of capacity, competence or motivation at the factory level)]

Dangerous conditions cited in the audits frequently take months to correct, often with little enforcement or follow-through to guarantee compliance.

Factories with different types of compliance issues can receive similar overall scores

“We see factories and brands passing audits but failing the factories’ workers,” says Dara O’Rourke, a global supply chain expert at the University of California, Berkeley

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Developing and implementing new regulatory instruments or

Strengthening existing ones first?

• The OECD Guidelines: promising after the 2011 revision, but poorly implemented yet

• Export credits as a lever of compliance Article 21 of the Lisbon Treaty, requires Member States of the European Union (EU),

when acting abroad, to adhere to the EU’s provisions on external action: “democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international law.” In December 2011 the Regulation approving the incorporation of the revised text of the Organisation for Economic Co-operation and Development (OECD) arrangement on officially supported export credits into EU law, known as the Export Credit Agency (ECA) Regulation, was adopted

• Collective bargaining & Global Framework Agreements

• Public procurement


Regulation of non-standard forms of employment through collective bargaining Addressing the rise of non-standard employment requires a multi-dimensional approach or a mix of strategies. Some of these strategies might comprise one or more of the following: • Organising subcontract/outsource/fixed-term workers using various

structures and modalities (union of agency or subcontracted workers, subcommittee of agency or subcontracted workers, association of agency or subcontracted workers, etc.);

• Extending the coverage of collective bargaining to include non-standard workers;

• Bargaining for limitation on the hiring of non-standard workers; • Bargaining for the regularisation of non-regular workers; • Use of multi-employer bargaining strategies; • Forging national framework agreements with big employer of non-standard

workers; • Social dialogue through tripartite structures (e.g., Singapore’s BSI, Tripartite

Cluster for Cleaners, and PWM for low-wage workers);

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Regulatory efforts and policies institutionalizing the principle of buyer / lead firm liability

The Prohibition against Shipment of “Hot Goods” Under the U.S. Fair Labor Standards Act

Under the “hot goods” provisions, the Department of Labor can seek a court order to prevent the interstate shipment of goods that were produced in violation of the minimum wage, overtime, or child labor provisions of the FLSA. The order can apply not only to the employer who produced the goods but to anyone in possession of the goods. The provision applies only to goods manufactured domestically,

The California Transparency in Supply Chains Act of 2010 California has made it unlawful to enter into a contract with a contractor in a range of industries (including garment, construction, farm labor, janitorial, security, and warehouse) with actual or constructive knowledge that the price paid is insufficient to enable compliance with local, state or federal laws. International legal mechanisms, particularly worker rights clauses in free trade agreements, also have a role to play in the pursuit of worker rights


Regulatory efforts and policies institutionalizing the principle of buyer / lead firm liability (contd.) California Transparency in Supply Chains Act of 2010 (I) - signed into law by Governor Schwarzenegger in September 2010 and

effective on January 1, 2012; - was enacted with the intent to inform consumers as to which companies

are acting socially responsible so that consumers can choose not to patronize those that are not socially responsible, and to even the playing field for socially responsible companies that refuse to work with suppliers that use forced labor in competing against companies that have reduced costs because they do;

- was aimed at mid-size and large retailers and manufacturing companies

with worldwide annual revenues of $100 million or more. It is estimated that the reporting requirement will impact about 3,200 companies headquartered in California or doing business in the state.

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California Transparency in Supply Chains Act of 2010 (II) The Act requires businesses to publicly post information on their websites describing the extent to which they engage in the following: • Verification: Verify product supply chains to evaluate and address risks of human trafficking and slavery; • Auditing: Perform supplier audits to evaluate compliance with company standards; • Certification: Require certification by direct suppliers that materials incorporated into company products comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business; • Internal Accountability: Maintain internal accountability standards and procedures for employees or contractors that fail to meet company standards on slavery and trafficking; and • Training: Train relevant company employees and management on human trafficking and slavery, particularly concerning the mitigation of risk within supply chains.


Regulatory efforts and policies institutionalizing the principle of buyer / lead firm liability (contd.)

Fair contracting / public procurement President Obama Issues New Executive Order on Fair Pay and Safe Workplaces On 31 July 2014, President Obama issued an Executive Order requiring federal contractors to disclose past labor violations. The order applies to new contracts for goods and services, including construction, valued at more than $500,000. Contractors subject to the new order must disclose any “administrative merits determination, arbitral award or decision, or civil judgment, as defined in guidance issued by the Department of Labor” arising from the violation of specified federal and state labor laws. The US Dep. of Labor has estimated that there are approximately 24,000 businesses with federal contracts, employing about 28 million workers.

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Further policy and regulatory challenges regarding social upgrading

Strengthen national capacity regarding legislation and effective implementation

Involvement of other actors facilitating the upgrading process

Regulatory measures addressing health, safety and environmental issues

Closing the low-road and transiting to the high-road approach

Encouraging lead firms or buyers to supplement GSC monitoring with collaborative initiatives aimed at diffusing workplace and human resource management practices among its suppliers in order to improve the quality of jobs

Transforming / Re-regulating EPZs

Documents

Global Supply Chains: 430 00 hits