SCDigest Editorial Staff

The News: News is that UK-based retailing giant Tesco is now joining US-based Wal-Mart, France’ Carrefour, and Germany’s Metro Stores to promote uniform and acceptable working conditions for their offshore supply base. The move comes three months after Tesco, despite apparently strong existing standards, received negative publicity after a national U.K. news report showed filmed footage of underage workers in two apparel supplier factories in Bangladesh.

The Impact: Along with “green supply chain” initiatives, public pressure and perceived self-interest is causing more and more companies to get tougher with worker pay and conditions in their offshore suppliers. In November, for example, Nike announced that it was ending a contract with a soccer ball supplier in Pakistan due to the contract factory’s failure to adhere to Nike’s labor standards. Violations of the Nike contract factory included having some of the work being performed in employees’ homes, a scenario perceived to increase the likelihood underage workers are used as laborers.

The real question: what will be the impact of costs and prices, if any?

The Story: Various reports indicate the four of the world’s largest retailer (Tesco, Wal-Mart, Carrefour and Metro) have formed a coalition to promote a set of global standards for working conditions and pay amongst offshore suppliers. A smaller but progressive Swiss retailer, Migros, is also part of the discussions.

The standards, said to be in approved draft form now, is being developed under the banner of the “Global Social Compliance Program.”  The work is being done in part in partnership with CIES, an international association of food retailers and suppliers.

A draft standard was apparently approved in December, and may be published formally at any time.

The initiative marks the first time that large general retailers, rather than manufacturers/brands such as Nike and Mattel, have become involved in creating a common set of global supplier standards.

Many manufacturers participate, at least on paper, in a program called the Ethical Trading Initiative. The Britain-based program requires independent monitoring of the global supply chain to prevent such abuse.

The new Global Social Compliance Program code will cover both food and non-food production for retailers and brands – making it potentially the most sweeping initiative since the emergence of the supply-chain monitoring movement a decade ago.

Critics of these programs argue that they fail to fully consider the market conditions in developing countries, and that the net result will be a loss of desperately needed jobs and national income in those countries.

From a purely supply chain perspective, the new standards will likely spur even further investigation by watch dog groups as to offshore working conditions – meaning companies will need to get even more aggressive about monitoring those suppliers.

Will these standards lead to higher offshore costs, and even in some cases make the move to offshoring less attractive? Probably not materially in the short term, but over time such moves will impact the marginal benefits of offfshoring.

What is your opinion about the possibility of new retail global labor standards? What will be the impact, if any, on offshore costs and decisions? Let us know your thoughts.