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  • Proceedings of the 15th Annual Conference of the Association for Chinese Economics Studies Australia (ACESA)

    Pursuing Corporate Responsibility in China - Supply Chain

    Management and Labour Rights.

    Serena Lillywhite1

    Brotherhood of St Laurence, Australia.

    Abstract

    Corporate social responsibility is increasingly being recognised as part of the global

    business landscape, an indicator of corporate citizenship, good governance and a

    risk management strategy. However, supply chain management rarely gives

    recognition to labour rights and environmental standards, rather, attention is

    focused on logistics such as price, quality control, sourcing, distribution and

    marketing. Corporate social responsibility must include responsible supply chain

    management and investment practices that promote labour standards, particularly in

    developing countries such as China, that may not have a well-developed regulatory

    environment. Enterprises, industry associations, home and host governments, non

    government organisations and trade unions are well placed, and indeed have a

    responsibility, to contribute to incremental progress and global collaboration that

    1 Correspondence to:

    Serena Lillywhite Manager, Ethical Business Brotherhood of St Laurence 67 Brunswick St, Fitzroy, VIC. 3065 AUSTRALIA Email: slillywhite@bsl.org.au Ph: +61 3 94831379 Fax: +61 3 94172691

    Lillywhite, S., ‘Pursuing Corporate Responsibility in China – Supply Chain Management and Labour Rights’. - 1 -

  • Proceedings of the 15th Annual Conference of the Association for Chinese Economics Studies Australia (ACESA)

    promotes labour rights as an integral component of responsible supply chain

    management and sustainable foreign direct investment. The OECD Guidelines for

    Multinational Enterprises are the most important code of conduct that exists for

    business, and are unique in that they have the support of business, trade union and

    non government organisation communities. Complex supply chain and

    subcontracting arrangements make application of the Guidelines more difficult, but

    encourage greater corporate accountability and transparency.

    Introduction

    This paper will address the issue of corporate responsibility in China in the context of

    responsible supply chain management and the promotion of labour rights in the

    manufacturing sector in Shenzhen, China. Research undertaken by the Brotherhood of

    St Laurence in several factories in Dongguan, Southern China, will be presented as a

    case study of their efforts to responsibly manage the transnational supply chain of its

    commercial enterprise—Mod-Style—an importer of optical frames for Australia’s

    independent optometrists. This case study presents from the unique position of a non-

    government organisation with commercial interests in a small enterprise, a complex

    supply chain in China, and a commitment to promoting labour rights and compliance

    with China’s Labour Law.

    First I will give an overview of the realities of foreign direct investment in China,

    drawing on the Brotherhood of St Laurence experiences. Secondly, I will identify the

    issues, opportunities and limitations facing both multinational and small to medium-

    sized enterprises that are committed to ensuring they have a positive impact on supply

    chain decisions. This will make reference to China’s Labour Law and regulatory

    environment, corporate codes of conduct, monitoring and compliance, and will

    provide practical suggestions on improved corporate responsibility in China. Finally, I

    will discuss the role of the OECD Guidelines for Multinational Enterprises and their

    contribution to supply chain management and the promotion of labour rights.

    Some of this work has been presented at the OECD Roundtable on Corporate

    Responsibility in Paris, June 2002 (Lillywhite, 2002) and at the Academic Meeting on

    Lillywhite, S., ‘Pursuing Corporate Responsibility in China – Supply Chain Management and Labour Rights’. - 2 -

  • Proceedings of the 15th Annual Conference of the Association for Chinese Economics Studies Australia (ACESA)

    International Labour Standards and Workers’ Rights, and Business and Human Rights

    in Wuhan, China, October 2002 (Lillywhite, 2002).

    Overview

    Foreign Direct Investment (FDI) in its broadest context is a major catalyst for the

    development and the enhanced integration of developing and emerging countries in

    the global economy. However, there is increased recognition (OECD, 2002) that the

    benefits of foreign direct investment do not accrue automatically and the ‘spillover’

    effects are not evenly shared across countries, sectors, local communities, and

    workers.

    A further development is the growing global awareness that trade and investment

    are increasingly integrated and that FDI needs to be sustainable. Sustainable FDI

    necessitates consideration of the economic, social and environmental impacts of

    investment—a clear link with corporate social responsibility (CSR). It means that

    investment needs to be driven by more than cheap labour and raw materials, and

    requires investment in labour and the protection of labour rights, technology

    transfers, education and training and protection of the environment.

    The idea of socially responsible investment is also gaining momentum amongst

    portfolio investors. This also requires an increased willingness by enterprises to

    accept responsibility for labour and environmental standards and conditions within

    supply chains. Corporate governance, labour standards, corruption and the

    environment are likely to be the major issues for ethical investors (Rosen,2002).

    With China’s accession to the World Trade Organisation (WTO) and the

    forthcoming Olympic Games in 2008, many foreign enterprises are assessing the

    opportunities and risks associated with doing business in China. This is set against

    the backdrop of a Chinese business culture and regulatory framework that continues

    to offer FDI incentives—namely, cheap and compliant labour, improved access to

    both the domestic and international markets, a stable political environment, a

    relatively (compared to other developing countries) well developed physical and

    institutional infrastructure and fiscal incentives.

    Lillywhite, S., ‘Pursuing Corporate Responsibility in China – Supply Chain Management and Labour Rights’. - 3 -

  • Proceedings of the 15th Annual Conference of the Association for Chinese Economics Studies Australia (ACESA)

    The business community is slowly beginning to recognise the global responsibilities

    of transnational enterprises, including the complex issue of supply chain

    management in developing countries. Corporate responsibility and triple bottom line

    reporting are now part of the business landscape and are increasingly linked to

    governance and risk management strategies. However, supply chain management is

    still primarily concerned with price, quality control, speed and reliability of delivery

    and access to, and integration with, global markets and production networks.

    Responsible supply chain management must also consider the impact on labour and

    environmental standards and sustainable investment practices. However, the impact

    on low skilled workers and the conditions under which they are employed is less

    often assessed. It is this aspect that will be reviewed here in the context of

    responsible supply chain management in China. An equitable, global economic

    system must promote social development, fundamental rights and sustainable

    development. Within Europe, ‘the recognition that sustainable economic growth

    goes hand in hand with social cohesion—which implies respect for core labour

    standards—now underpins the strategic and social policy goals of the Economic

    Union and recognises that global market governance has developed more quickly

    than global social governance. Core labour standards underscore the close inter-

    linkage between trade and investment, economic growth and social development and

    the need to address these issues in an integrated manner. This requires a

    multidisciplinary approach to the promotion of core labour standards’ (European

    Commission, 2001, p.4).

    So where does the protection of labour rights and the enforcement of decent working

    conditions fit in, particularly for the low skilled, vulnerable, migrant workers in

    Southern China's manufacturing zones? Non government organisations (NGOs) and

    civil society representatives have long understood social inequality and the structural

    imbalances that contribute to such inequality.This is only recently being recognised

    by governments and multilateral organisations as an important contributor to an

    enabling environment that attracts sustainable, quality FDI and promotes corporate

    responsibility.

    Lillywhite, S., ‘Pursuing Corporate Responsibility in China – Supply Chain Management and Labour R

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