As supply chains stretch around the globe, scrutiny of working conditions in distant factories has increased. But international labor standards often depend on corporations engaging in “private voluntary regulation,” and even when such standards are adhered to, factory floor dynamics may determine their actual effectiveness.
A 2012 study by researchers at the MIT Sloan School of Management and the Inter-American Development Bank (IADB), “The Promise and Perils of Private Voluntary Regulation: Labor Standards and Work Organization in Two Mexican Garment Factories,” evaluates conditions at two Nike facilities in Mexico (referred to as Plant A and Plant B). Published in the Review of International Political Economy, the study involved field research and more than 90 interviews with factory owners, managers, workers and NGO representatives.
The findings include:
- Both facilities respected minimum wage laws, but workers in Plant A were paid more than those in Plant B; in addition, they received productivity bonuses based on team work, while Plant B based bonuses on individual work.
- Both plants adhered to Nike’s policy on working hours and overtime pay, but workers in Plant A were more likely to receive overtime than those in Plant B because they were made more aware of the policy.
- Workers at Plant A enjoyed more job satisfaction, had a higher degree of input in decision-making and had a greater degree of flexibility between team and individual work than those at Plant B.
- Plant A demonstrated better labor standards and was more productive than Plant B, despite its smaller size and less complex product mix. This contradicts earlier studies that suggested that larger, more bureaucratic factories and a more complex product mix would lead to better respect for labor standards.
- Plant A was closer to Nike’s regional office in Mexico City than Plant B, and this had a positive impact on labor standards. Plant A was also in an industrialized area near other factories, creating more competition for labor than Plant B.
- “More frequent visits and more open communication between Nike’s regional staff and management at Plant A led to the development of greater trust and a better working relationship between these two actors. This, in turn, contributed to the upgrading of Plant A’s production system and its consequent positive impact on working conditions at the plant.”
- Plant A was owned and operated by local firm in Mexico, whereas Plant B was operated by a Taiwanese company, significantly changing management-labor dynamics. Workers in Plant A tended to be treated better and viewed as valuable assets; those at Plant B were viewed as expendable by the management, which often favored hiring Asians workers because they were considered more productive.
- International ownership could negatively impact work standards because workers have greater difficulty voicing their concerns. In addition, there can be more willingness by management to move to another country or hire other nonresidents if labor issues arise.
Overall, the study demonstrates that two very similar factories – each evaluated by corporate management as being roughly equal in terms of labor standards compliance — can have different ground-level outcomes. The researchers suggest that “a more systemic approach, one that combines external (countervailing) pressure, comprehensive and transparent monitoring systems, and a variety of ‘management systems’ interventions aimed at eliminating the root causes of poor working conditions, is required to promote improved labor standards for the millions of workers employed in global supply chain factories.”
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Professor Thomas E. Patterson, member of Board of Directors, Board of Thinkers, Boston Global Forum.