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Going safely overseas

By William Zhu, Jas Singh and Kathy Norton

Executive Summary
Many international companies have had their overseas operations criticized for not protecting employees’ health and safety – even when the relevant businesses are not controlled by the multinational corporations. Multinationals need to use their clout to improve environmental health and safety down to the far reaches of their supply chains to stave off negative publicity in a linked-up world.

Some Western companies with foreign operations, especially in Asia, have received negative publicity regarding employee health and safety, even though those workers aren’t employed directly by the Western corporations. The conflict can be summed up by the following points of view:

Western business executive: “We do manufacturing in Asia because it means lower wage costs and fewer regulations. We’re compliant with health and safety laws in the countries where we operate. It’s up to those countries to enforce their own rules, and that includes enforcing compliance of suppliers that make components that go into our products. We’re helping to provide good jobs and economic growth.”

Asian activist: “Western companies are hypocritical. They comply with the strict health and safety regulations in their own countries and may have good standards in their direct operations in Asia. But they put huge price squeezes on their suppliers further down the supply chain in Asia. To meet those Western demands, Asian companies take shortcuts that endanger their workers. Western companies are responsible for killing and injuring our people.”

These two arguments show why some Western-based companies are finding unexpected vulnerabilities in their globe-spanning supply chain. These vulnerabilities do not relate to the challenges of shipping components and finished products to their markets from Asia. Rather, they have to do with reputational risk – the risk that comes from being seen as irresponsible and uncaring, perhaps not through their own actions, but through those of their business partners. In some cases, that includes their business partners’ partners and further down the supply chain right back to the wellhead, mine, forest, farm or other source of raw materials.

Perceptions can develop that a company only is concerned with the reputation of operations that directly bear its name, that there is no standard of care beyond that and that price is the only thing valued. This can erode the reputation of companies that have demonstrated, for years, vision and values that include caring for people and the planet.

Some of these supplier companies, with names virtually unknown in the West, are huge, with thousands of workers in any one area. Some of them are small, local shops, with management unfamiliar with world-class health and safety requirements. Most of them focus on producing high volumes of specialized products at the low prices required by their customers. Small increases in costs can turn them unprofitable, and sometimes this means that health and safety considerations take a back seat.

These supplier companies are well aware that a multinational corporation easily can decide not to renew a contract if the supplier’s price gets out of hand. In some cases, manufacturers along the highly developed east coast of China are increasingly vulnerable to competitors in the western part of the country, who may be able to shave a few percentage points off of a product’s cost and win the contract. Chinese manufacturers, also, are vulnerable to price undercutting by companies operating in places that may have even lower costs, such as Vietnam.

The result is even greater pressure to keep costs down, and, all too often, health and safety measures are not a high priority.

Health and safety: It’s vital

Western companies are accustomed to heavily regulated workplaces in their home countries, with laws regarding worker safety that generally are enforced. These laws, evolved over centuries and decades of experience, by and large do a good job of keeping workers safe from hazards. There are well-placed grievance mechanisms in place for when the system fails to deliver.

There is an expectation by management, supervisors and line employees that workplaces should be safe and that employees should not be asked to do unsafe work. Perhaps most important, employee training is an expectation, so that employees are familiar with any hazards in their workplace.

An open, independent news media is able to report workplace injuries. Governments support this, with penalties for unsafe work conditions that can include criminal proceedings and jail for managers who do not hold safety important. Even these advantages do not always result in a safe work environment. Many employers in Western countries are deficient in protecting their employees.Western employers accustomed to their relatively well-ordered world may expect similar conditions in other parts of the globe, including Asia. They may believe that similar standards of health and safety are found in government regulations in those countries and that those standards will be enforced.

China, for example, has government agencies like the Center for Disease Control and Prevention, roughly comparable to the U.S. National Institute for Occupational Safety and Health (NIOSH). However, it does not tend to conduct workplace assessments unless asked to, and even then its employees have little incentive to carry out a thorough investigation. This level of assessment often is left to state and local authorities. These entities are motivated to encourage employers to locate in their areas to stimulate tax revenue and employment. Thus, their workers are not given incentives to put up barriers to employers’ freedom of action.

However, multinational corporations in fields as diverse as athletic shoes, clothing and information technology products are finding that even if they comply with local law, that is not good enough to protect worker health and safety – and their own reputations.

Some of the change comes from nongovernmental organizations (NGOs) drawing attention to injuries, unsafe working conditions and other problems among companies supplying the name-brand companies. In some cases, these problems have led to suicide by employees.

These NGOs may find themselves hitting a brick wall when they try to call second- and third-tier suppliers to account. But they have learned that name-brand multinational companies are highly vulnerable to bad publicity because it affects their image with their customers. This is evident from recent negative media coverage blaming Western companies for supplier company health and safety woes, a primary example being a barrage of damaging reports on a well-respected global high-tech company in the Chinese media.

Popular social networking media, including the ubiquitous YouTube, mean that even a small NGO can deliver a big hit to a multinational corporation through posting a video, article or other content showing that the company is using components made in a way that exploits workers.

Stepping toward improvement

Multinational corporations looking to protect the workers that make their products, and to protect their own brands from criticism, need to develop an effective plan that finds where the gaps are and develops ways to close those gaps.

The Western companies must educate their suppliers about the importance of health and safety and make it clear that it is an important consideration in continuing to do business with suppliers, including those further down the supply chain. This can go a long way to improving the situation. Asian employers naturally want to protect their workers and fellow citizens from harm and will do so if the necessary circumstances are in place. Those “circumstances” include an understanding that health and safety measures may result in cost increases and that the customer is willing to accept those increases.

A health and safety audit can be a powerful tool for improving employee health and safety within supplier companies. The first benefit is the audit’s function as an educational tool. It shows the supplier’s management team what a healthy and safe environment looks like. Many companies, pressed to produce product reliably and above all at a low cost, may not have put a priority on learning about health and safety. This may be the case with small companies brought into being to supply one particular part or component for a specific organization or a company that itself supplies a multinational corporation. In this way, the audit helps build awareness of what factors go into making a workplace healthy and safe.

Second, a multinational corporation’s audit process provides a powerful motivation to make changes for the better. If the supplier’s management team is left in no doubt that the contract (or its renewal) depends upon getting a good review based on the audit, experience shows that the necessary improvements tend to get made, and promptly. This means that the multinational must convince its suppliers that the audit must be taken seriously and its requirements met, along with meeting requirements regarding quality, reliability, price and other economic concerns. Progress should be monitored and contracts denied to companies that fail to follow through on health and safety matters.

A third benefit of the audit is its help in establishing a plan, including setting priorities, for bringing a manufacturing operation into compliance. The most critical deficiencies can be worked on first to manage the risk to the health and safety of the workers – and to the reputation of the multinational corporation. Experience shows that a continued supplier contract is more effective than the “stick” of regulation.

Any training should be cognizant of local cultures and realities. For example, a recent training seminar in Hawaii started off with an invocation performed by a Kahuna, or priest of the traditional Hawaiian religion.What does a health and safety audit include? There are no internationally recognized templates. However, there are widely accepted considerations that must be made, many of them based on experience gained by environmental health and safety professionals globally.

Employee safety issues include whether machines are guarded appropriately to protect workers, if emergency exits are well-marked and not blocked, and if multistory buildings have proper exits. If hazardous materials are used, there must be appropriate safety procedures that are followed, including engineering controls to protect workers, and appropriate personal protective equipment is needed. Companies must keep inventories of hazardous materials and monitor employee exposures.

Environmental matters include managing emissions to the atmosphere and the disposal of wastes, such as ensuring that the waste haulage company is licensed appropriately and that it follows the rules for disposal.

Many of these issues are common to all workplaces, with some special considerations applied to manufacturers. Some industries, such as pharmaceuticals, have their own special challenges, in part because one of the quality assurance issues has to do with preventing contamination of the product itself.

Right skills, right place

Clearly, multinational companies must pay closer attention to the environmental safety and health activities of downstream suppliers. Many large organizations will have staff on the ground in Asia, people who are familiar with the company’s operations, inputs and products. These employees would know the local language and business realities, including workplace regulations.

Smaller companies, or those whose in-house professionals are used to capacity on operations directly controlled by the multinational company, could consider third-party assistance. But do due diligence to ensure that any hires know international health and safety standards, have relevant experience and are familiar with the local situation and language.

Multinational companies are in an excellent position to help supplier companies, as well as companies further down the supply chain, understand what is necessary to protect their workers. The multinational company has the ability to withhold contracts or grant them only if certain safety conditions are met.

Good attention to health and safety issues throughout a company’s supply chain can go a long way toward demonstrating goodwill and to protecting its reputation. And in today’s linked-up world, that is a strategic competitive advantage.

William Zhu is a senior industrial hygienist in the Shanghai office of Golder Associates. Zhu is a graduate of the Shanghai Medical College, currently known as Fidan University. He worked at the local regulatory agency (CDC), prior to joining Golder. Zhu is a certified industrial hygienist by the American Board of Industrial Hygiene. He has been a lead instructor at a number of international occupational hygiene certification training programs for the Occupational Hygiene Training Association.

Jas Singh, a senior consultant with Golder Associates, has more than 30 years of experience in providing industrial hygiene and safety services to industry, government and trade organizations in the United States and abroad. For the past 12 years he has focused on health and safety issues in Asian countries, with particular emphasis on China and India. Singh is past president of the Academy of Industrial Hygiene.

Kathy Norton is a senior industrial hygienist and the office manager at Golder Associates’ office in Irvine, Calif. Norton has 20 years of experience in the occupational and environmental health and safety field. Prior to joining Golder, she worked in roles in manufacturing and later at a major environmental health and safety consulting firm. She recently served as president of the Orange County American Industrial Hygiene Association.

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