Stay in China despite compliance woes, urges expert

Companies should not be turned off to producing in China in the wake of Coca-Cola's admission that two-thirds of its suppliers in the country were not compliant last year with company policies on issues such as workers' rights and the environment, a leading consultant has said.

Reuters reported that Coca-Cola's 2007 Sustainability Report stated 255 of the 371 Chinese suppliers it uses for things like packaging, ingredients and premiums, failed to comply in one way or another with a set of principles the company implemented in 2003 to promote respect for labour rights among its business partners globally. Challenges were "prevalent throughout the supply chain," said the report.

Forty-eight suppliers were labelled "significantly" non-compliant and viewed collectively as a "critical risk to operations", said Reuters, while 144 were categorised as "moderately" non-compliant with issues like systemic wage or overtime violations or blocked emergency exits. Some 63 were in "minor" non-compliance. According to Reuters, the report did not say what types of violations were most prevalent or give specific examples.

The soft drink giant said it had training and other remediation targets to bring errant suppliers up to standards, arguing working with them was better than cutting them off — a stance backed by Andrew Buirge, president of scientific consulting for expert consultancy Aim & Act.

"The problem of blatant non-compliance with suppliers is not limited to multi-national corporations," he said. "Any company utilising Chinese companies for packaging, raw material supply or assembly can be subject to the same problems.

"There are several factors that lead Chinese companies to be non-compliant. The first and foremost of these is a largely uneducated workforce. Training is frequently inadequate at best and sometimes even non-existent. These workers are not only responsible for performance of tasks necessary to create the end product but to some extent for quality control as well.

"The other major factor leading to non-compliance is a traditional lack of regulatory control. Though the Chinese State Food and Drug Administration has committed to increasing inspections over two-and-a-half-fold in the coming years, the current audit force is simply too small to inspect so many facilities.

"The US Food and Drug Administration is establishing a permanent operations base in China for the purpose of increasing regulatory oversight of products exported to the United States, but the process will take many years before compliance is the standard instead of the exception."

However, companies should not develop cold feet about China, he insisted. "The solution to these problems is not, as many companies believe, to move manufacturing to another country. It is instead to simply understand that with carefully design procedures and a little education, quality and compliance will result. The Chinese are experiencing what could best be described as their industrial revolution.

"With that in mind, consider the working conditions, wages and quality control that the west had during its industrial revolution. Using western expertise, strict quality standards and modern manufacturing techniques, Chinese facilities can produce consistent, high quality goods. The solution is then to utilise experts in manufacturing to educate, establish quality systems and ensure that current good manufacturing practices are being followed."

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