At Ask Idea Sourcing, we believe in transparency and honesty with our clients. The truth is that there are social compliance concerns in some factories in China. You may have seen stories about manufacturing concerns overseas, ranging from health and safety violations to severe factory explosions.

For example, in 2016, the Fair Labor Association found that a Chinese supplier for G-III Apparel Group had over 24 violations of international labor laws. This included unfair wages, extreme overtime, and a lack of social insurance. G-III supplies clothing for Ivanka Trump, Calvin Klein, Tommy Hilfiger, and other prominent brands. This public audit damaged the reputation and sales of these major companies, which they’re still trying to recover from.

It’s our job as your sourcing partner to ensure you avoid these social compliance concerns. You want to work with ethical companies aligned with your values and mission. You want to protect your business, your workers, and your customers.

Avoiding social compliance starts with understanding it. Read on to learn more.

What is social compliance?

Social compliance is a broad term that refers to how a business treats its employees with regards to health, safety, wages, and benefits. There are international and national protocols to regulate working environments. “Compliance” means that the company follows these social regulations appropriately.

“Social compliance” is considered to be a fundamental right worldwide. It’s widely accepted by the majority of countries that employees deserve to have a safe working environment.

Social compliance concerns can come in the form of child labor, forced labor, unhealthy or unsafe factory conditions, fire hazards, unfair wages, excessive overtime, inadequate benefits, and inhumane disciplinary practices.

These issues are especially common in the garment industry because manufacturing garments is a highly labor-intensive process. In order for factories to make money, they often feel they have to overwork their employees to produce an appropriate amount of goods. These types of factories are typically referred to as “sweatshops.” (Technically, though, the U.S. Department of Labor defines “sweatshop” as any factory that violates 2 or more labor laws.)

The Importance Of Social Compliance In Your Factory compliance components on chalkboard

What are the consequences of noncompliance?

Noncompliance with social regulations affects millions of workers worldwide, especially those in manufacturing and agriculture industries. It can drastically reduce workers’ quality of life, sometimes to inhumane levels. These poor conditions can push people deeper into poverty and cause severe health concerns. In some extreme cases, factories have even exploded or collapsed because working conditions are so unsafe.

At Ask Idea Sourcing, we only work with factories that care about the health and well-being of their employees first and foremost.

Along with the poor treatment of workers, social noncompliance can have serious consequences for your business and supply chain.

1.Backlash from customers

Today’s customer pays attention to where their products are coming from. In our global economy, consumers are becoming more socially conscious with regards to the businesses they support.

Sustainable and ethical companies are gaining favor in the majority of the population. A Nielson 2015 global survey found that 66% of respondents would pay more for products that come from socially responsible companies. Customers are willing to pay a premium to support ethical companies.

It often becomes a large, public scandal when labor violations are released about a certain company. In fact, some small businesses have been put out of business before they were even profitable because word got out that they were dealing with unethical suppliers.

Even one violation can irreparably damage your brand reputation.

 2. Loss of business relationships

In a similar vein, other businesses don’t want to be associated with unethical or noncompliant companies. Your business partners might choose not to work with you if you deal with noncompliant manufacturers, because they know that it could damage their reputation as well.

For example, if you’re an Amazon seller, Amazon can choose to suspend or shut down your account if you have social compliance violations.

3. Production delays

Since 2016, there have been a recorded 785 strikes in the manufacturing industry. Factory workers might decide to strike in order to demand higher wages and improved working conditions in noncompliant factories.

Strikes can last months if workers and factories can’t come to an agreement. Even a few workers on strike can put the factory behind schedule. If the entire factory staff strikes, you’re looking at a significant production delay that could leave you without inventory for an entire quarter or two.

This can severely delay the production and shipment of your goods. Often, these strikes are unexpected, so your order fulfillment will be put on the back burner indefinitely. This can damage your entire supply chain moving forward for the rest of the year.

4. Customs seizure

In 2016, the U.S. banned imports that are produced by forced or child labor. The U.S. Department of Labor holds a list of goods and those goods’ source countries that don’t follow social compliance standards. Customs agents have been seizing some shipments that are suspected to come from noncompliant suppliers.

If U.S. Customs seizes your goods, you’re out of luck. You don’t get those goods back and you don’t get reimbursed. You are simply out of that money, inventory, and time.

Ultimately, working with a noncompliant factory can misalign your brand mission and brand practices. This leads to production concerns and a loss of consumer trust and business partnerships.

Social violations can kill your business.

How do you ensure social compliance?

Because of these concerns, you want to mitigate the risks of noncompliance at all costs.

Read: How To Lawfully Import Your Products From China

1. Know the standards.

There are a number of industry regulations with which you should be familiar. Work with a sourcing partner, like Ask Idea Sourcing, who is proficient in global certifications and legal regulations. To get started, you should be aware of the SA8000 Standard and local laws.

The SA8000 Standard is the worldwide industry standard for social compliance. This set of regulations is based on the United Nations Declaration of Human Rights, the conventions of the International Labor Organization, and international human rights norms and labor laws. The goal of this standard is to provide health and freedom to workers.

This standard sets out nine requirements for social compliance:

  1. Child labor: No child is permitted to work under the age of 15.
  2. Forced labor: One cannot employ work to a person who hasn’t volunteered to work or is under threat of punishment or retaliation.
  3. Health and safety: Employers must take certain steps to provide a safe environment and must proactively prevent incidents or occupational injury/ illness.
  4. Freedom of association and collective bargaining: Staff has the right to form, organize, and join a trade union and bargain on the behalf of that union.
  5. Discrimination: An employer cannot discriminate with regards to hiring, payment, training, promotion, termination, or retirement.
  6. Disciplinary factories: An employer cannot tolerate corporal punishment, verbal abuse, or mental or physical coercion of staff.
  7. Working hours: An employer must comply with local laws and industry standards with regards to working hours and overtime.
  8. Remuneration: Staff has the right to a living wage, which is based on local standards.
  9. Management system: An employer must have set policies and procedures that consistently review compliance for the SA8000 Standard.

The most common violations of the SA8000 standard are unfair or low wages, inadequate social insurance benefits, excess overtime, and health and safety violations.

You should also be aware of national laws. Different countries have different social compliance regulations. In China, for example, the government limits membership to national trade unions and prohibits organizing other trade unions. Thus, you’ll have unique union laws that might be different than our unions in the U.S. or trade unions in other countries.

Also, China has no national minimum wage because living standards vary drastically throughout the country. This means that remuneration is often based on the local law, so this can sometimes come up in a bit of a gray area.

The Importance Of Social Compliance In Your Factory businessman researching on laptop at desk with notepad

2. Create your own standards.

To overcome some of these gray areas, you can create your own ethical standards. A number of retailers, like Target and Nike, have their own social compliance programs. They create a set of standards that they then uphold with regular factory audits, both privately and by the government.

Work with a sourcing partner to create social regulations that will be most appropriate for your industry. You can then choose manufacturers who are compliant with your regulations.

We also recommend putting these requirements in your contract with the factory. Include a penalty clause that states the factory has some sort of consequence if they do not follow these standards. This can ensure your brand’s supply chain is always aligned with your social mission.

3. Investigate potential suppliers.

Before you choose to work with a supplier, research their social compliance thoroughly.

What are their factory standards? What are their certifications? What do other sellers say about this supplier?

We recommend performing a factory inspection and audit prior to agreeing to a sourcing contract. This will give you a face-to-face relationship with your supplier to ensure they are legitimate and compliant.

Ask Idea Sourcing is a global sourcing organization with a specialization in supplier assessments. Our team on the ground in China can perform these factory inspections and build relationships for you, so you can always feel secure in your choice of manufacturing partner.

Read: 5 Reasons You Can’t Choose A Chinese Manufacturer—And How To Overcome It

4. Perform consistent audits.

Along with this initial factory inspection, you should perform ongoing audits as well. “Audits” consist of a physical inspection of the building, interviews with factory staff, and a review of wages, working hours, and working conditions. There are two types of audits: official audits by the government and unofficial audits by an independent third-party.

Unofficial but consistent inspections can ensure your factory maintains compliant. The greater your presence on site, the more you can ensure quality standards.

Ask Idea Sourcing’s team performs frequent factory inspections to implement quality control to ensure you always remain above standard.

The Bottom Line

Social compliance is a major concern and challenge for U.S. importers. You want your entire supply chain to remain ethical and conscious in order to protect both your workers and your brand. Taking compliance steps, like factory inspections and setting retail standards, proves to your customer and business partners that you are committed to your social mission.

Ensuring compliance starts with choosing the right supplier.

Choosing the right supplier starts with the right sourcing partner.

Contact Ask Idea Sourcing now to start finding a quality, socially-responsible supplier for your Amazon brand.

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