Responsible business and migrant workers series: closing the gap between policies and actions [Part 1]

On Sunday 30 July, the United Nations marked World Day against Trafficking in Persons. The annual event aims to raise awareness and increase prevention of people trafficking and modern-day slavery, which are issues that remain prevalent throughout the world.

Trafficking and slavery are human rights violations that have severe and lasting impacts on the victims of these crimes and exist in many global supply chains, typically in the form of forced and bonded labour. This is most prevalent in the employment of low-wage, migrant workers, which many domestic and international supply chains rely on to reduce costs in production and supply. However, this is a business model that is highly susceptible to the abuse of the rights of vulnerable workers. This often starts with recruiters in source countries soliciting fees from candidates that can exceed yearly salaries by many times and often leaves workers in situations of debt bondage. The issue is made worse when employers routinely withhold identity documents to restrict the freedom of movement of workers.

Although some companies have established stringent responsible recruitment policies and commitments, based on established models such as the Employer Pays Principle [1], we are still not seeing improvement at scale in supply chains; things aren’t improving much on the ground. Underlining this gap between policy and action, data from the 2022 Know the Chain benchmark [2] of 184 of the largest companies operating in high-risk sectors, found that while most companies had policies addressing forced labour and recruitment fees in their supply chains, 66% of the companies benchmarked do not disclose any forced labour risks identified in their supply chain. Only 17% disclose remediation of forced labour cases and only 13% disclosed the repayment of recruitment fees to workers in their supply chains.

So, what’s going on here? Why are companies still failing to make progress on these issues? It’s complicated. Recruitment corridors are complex with multiple actors in source countries who are not under direct contract to the employer but are all charging a fee to candidates. Many of these fees are legitimate in the source country, with employers and other stakeholders in destination countries limited in their ability to prevent debts. So, companies typically stop at policies and contractual penalties because action is difficult and demands a multistakeholder response throughout the recruitment corridor.

About this blog series

Jean-Baptiste Collovray is a Senior Consultant at Kumi specialising in responsible business practices in the electronics industry. In this three-part blog series, he addresses ideas for closing the gap between policy and action. This first blog in the series will look at the impact of companies’ purchasing practices on vulnerable workers. In part two he will focus on how gaps in companies audit and grievance activities are failing to meet policy commitments. Finally, in part three, Jean-Baptiste will look at how capacity building and multi-stakeholder initiatives are helping to improve employment conditions and lower risks to vulnerable workers in supply chains.

Part one: Companies’ purchasing practices have a significant impact on employment practices in their supply chains.

In my experience working with companies to build responsible business systems, I have seen how purchasing practices can play a big part in causing or worsening impacts to vulnerable workers. Practices such as short contract windows, unpredictable orders and aggressive pricing in response to procurement models, such as Lowest Price Technically Acceptable (LPTA), create a requirement for low-cost, migrant labour and also drive poor employment practices that disproportionately impact those workers. Here are some of the common things I’ve seen:

“We are committed to eliminating modern slavery… but also to keeping costs low.”

Pricing remains the dominant factor in most supplier selection. It’s also the main performance criteria on which buyers are incentivised. Even where sustainability criteria are used, I have seen these being overlooked, or waivers being used, when cost, quality and other key criteria were met. On the other hand, I can’t recall any cases of suppliers with strong sustainability performance being preferred over a supplier with more attractive pricing and poor sustainability performance. This puts suppliers under constant pressure to maintain low margins and to transfer this pressure upstream to subcontractors and suppliers.

It also increases the risks to vulnerable workers where suppliers seek to reduce costs in response to downstream pricing pressure. This can happen through delayed wage payments, deliberate miscalculations in pay, corner-cutting on safety equipment and related expenses, cutting of welfare provisions such as medical cover, food, allowances, and facilities, and a disregard for responsibilities under labour laws. Where suppliers enter extended contracts over two years or more, these low-price models add more pressure to suppliers and increase risks to their workers as they seek to control costs in the face of unforeseen external factors, such as material inflation.

“But they are the only supplier that can meet our requirement…”

It is important to engage with potential suppliers on responsible sourcing from the very beginning of the relationship. This helps to avoid situations where responsible sourcing criteria are assessed at a stage where the commercial imperative to work with the supplier will dominate any other consideration. During my career in the electronics industry, I have encountered cases where the research and development process for key products have happened in close collaboration with a very specific supplier prospect, using samples before the supplier undergoes a supplier qualification process. When the time comes for supplier qualification and mass production, the commercial imperative of meeting customers’ expectations leads to supplier approval even if responsible sourcing criteria was not met and serious risks have been identified.

Same coin, two very different sides

Competing objectives is another contributing factor I’ve seen in electronics and other industry sectors. I recall a recent case of a supplier being asked by a sustainability department of an electronics company to reimburse recruitment fees paid by its workers and to ensure fair recruitment practices. At the same time, the supplier faced aggressive pricing negotiation and poor production planning, including unanticipated changes, from buyers at the same company. It is essential to maintain ongoing communication between social responsibility teams and purchasing departments to avoid this. This ensures alignment and consistency in their actions towards suppliers and minimises the risk of unintended consequences, which disproportionately impact vulnerable workers.

Implementing responsible purchasing practices, practical areas of focus:

Although the practices and challenges faced may differ from sector to sector, adopting responsible purchasing practices to limit adverse impact on vulnerable workers should be prioritised in any responsible business programme. Practical ways to do this include:

Factor in the long-term value creation and the lifecycle cost of engaging a supplier. If a supplier is having to cut costs to win your business, how resilient are they to change and are they cutting corners on safety, quality and service level, which may make them the more expensive option in the long run?
Ensure that objectives are understood and aligned between social responsibility teams, purchasing departments, and other business units to avoid adverse impacts or competing priorities in the engagement of suppliers.
Include responsible purchasing metrics in buyers’, senior leadership’s and other relevant employees objectives and incentivise performance on purchasing practices beyond price (e.g. compliance to production planning and payment timeline, accuracy of forecasts, etc.).
Evaluate suppliers’ responsible business conduct, giving it a significant weighting in sourcing decisions alongside other factors such as quality, cost, delays etc.
Raise awareness and provide training and capacity building on responsible sourcing and the impact of purchasing practices for all employees whose actions impact suppliers.

Responsible purchasing practices reduce the risk of adverse impacts to vulnerable workers in supply chains and lead to better supplier relationships that ultimately builds resilience.

If you’d like support from Kumi to accelerate your due diligence programme, please do get in touch.

[1] https://www.ihrb.org/employerpays/the-employer-pays-principle

[2] https://media.business-humanrights.org/media/documents/KTC_2022_Risk_and_remedy_briefing.pdf