Where NZ shops - the ethics

Most major retailers appear to be turning a blind eye to the conditions their goods are made under.

Just a handful of 20 major retailers surveyed by the Business Herald confirmed they had formal processes in place for checking whether suppliers met international standards for employer practices and working conditions, health and safety and environmental responsibility.

The figures contrast with recent international research suggesting social responsibility has become mainstream for major businesses. A KPMG report this month found 41 per cent of the top 100 companies in 16 countries carried out some form of corporate responsibility reporting, rising to 64 per cent of the top 250 companies in the Fortune 500 index. Most of the latter reports-80 per cent-mentioned supply-chain issues.

"In a global economy with countries relocating part of their production to suppliers in low-cost countries, the responsibility agenda will grow," the report predicts.

Bureau Veritas conducts code of conduct and social accountability audits for multinationals. Maurice Davis, chief executive of its New Zealand arm, said he had never been approached to do either for a local company.

"If you don't want to know, you don't look," he said.

Internationally, large companies seemed to have learned lessons from the widespread consumer outrage that followed the 1990s' accusations that suppliers to Nike used sweatshop labour. But in New Zealand, few major retailers have put checks in place despite a significant shift to offshore sourcing during the past two decades.

The Retailers Association estimates that more than 50 per cent of the goods sold through major chain stores are now made in China. Large retailers surveyed imported between 20 per cent and 95 per cent of their stock, largely from Asia. China was overwhelmingly named as the dominant source of supply.

Rachel Brown, chief executive of the Sustainable Business Network, said there were significant questions over the environmental and social standards operating in Chinese factories.

"If you don't know, you either don't care, or you're running blind," she said.

But many retailers believed the view that Chinese factories were rife with health and safety violations and underage workers were outdated. Some argued the actions of major international retailers had already affected change, others that the move to better practices had occurred through economic reality.

"If you look at the issues of child labour and other social issues, they were certainly genuine in 1960s, 1970s and 1980s. But, in this decade, Chinese employers have realised they can provide better quality, and make more money, by modernising factories and securing labour," said Greg Muir, executive chairman of Pumpkin Patch.

In practice, even those such as Pumpkin Patch and The Warehouse who have kept themselves informed about conditions at supplier factories, said they had never come across the kind of horror story that tripped up Nike.

Nick Tuck, who heads The Warehouse's direct sourcing office, and Gary Ewen, strategic sourcing and procurement manager, said that with 35 years of sourcing goods internationally between them, they had never seen that kind of factory.

But The Warehouse's practices do weed out poor practices: since its direct sourcing was established in December, the company has rejected a factory in Qing Dao, in northern China, as a potential supplier of blue tarpaulins for trailers. The supplier passed an initial questionnaire about practices, but when auditors visited the factory they found problems with ventilation and light. More often, The Warehouse will work with suppliers to correct minor issues.

The view that significant problems are rare does not wash with everyone.

"There's an awful lot of product that comes out of China that is actually made in prison factories, where slave labour is used - some of that has got to end up on shelves in New Zealand," Green Party co-leader Rod Donald said.

Those in his camp argued retailers who were not checking could not know whether goods bought through trade fairs were made in the modern factories of southern China or in less developed parts of China.

Clothing workers union industry officer Robert Reid was based in Bangkok as part of a workers rights programme for six years in the 1990s and frequently visits China. He agrees China has modernised and said wages were rapidly rising there, at the rate of about 10 per cent a year. But it was not good enough to assume appropriate working conditions prevailed.

He said there were worse problems in countries such as Bangladesh and Cambodia, and to a lesser extent Indonesia and Sri Lanka, from which retailers also sourced goods. 

Even if China had changed, some believed the processes to check suppliers needed to be in place because of the continued pressure to find the lowest cost environment, which is already leading international retailers like Wal-Mart to shift some of its purchasing from China to India.

Donald said customers should apply pressure to retailers who did not audit their supply chains. 

Lyn Mayes, communications manager for the New Zealand Business Council for Sustainable Development, said it was just such consumer interest that has prompted overseas retailers to rethink their approach to supply. "Many of them have taken the moral high ground: we will look out for you, we're doing the checks for you. That's not happening here -you can't go into a shop and say, I trust this brand to have made the right decisions for me," she said.

The KPMG report found half of the companies it surveyed stated ethics were a factor for their move into corporate responsibility reporting. But even more - 75 per cent - cited economic factors. They saw it as bringing benefits either directly through increased shareholder value or market share, or indirectly through better business opportunities, innovation, reputation and reduced risk.

Many local retailers argue that they simply cannot afford the luxury of an extra layer of cost, as they operated on a far smaller scale and with fewer resources than their overseas counterparts such as in the UK. Nor would their views carry much weight with suppliers, because their orders were relatively tiny.

"Tesco would have more people working in their test kitchen than are employed by Briscoe," said Pete Burilin, chief operating officer of Briscoe Group. "We are infinitesimally small. It would be very difficult for New Zealand to have any major impact on standards."

But he said Briscoe might look at the issue in the future. "At the end of the day, we're human."

Stephen Tindall, founder of The Warehouse, has been active in promoting corporate responsibility. He said when he began importing, he would go to a trade fair, place an order and not think about a product until it was time to reorder. But it became clear through the examples set by UK retailers such as Tesco and B&Q that retailers could have an "incredible influence" if they ensured goods were sourced ethically -as well as cut a huge amount of waste out of the supply chain.

"I think it's a business need," said Tindall, who viewed supply chain auditing as a type of insurance.

Ethics aside, just one mistake could destroy a company's reputation.

A large number of retailers, including Smiths City, Briscoe, and Noel Leeming, said they did not have concerns over imported branded goods, because they assumed brand owners were doing checks. Others such as Progressive and Foodstuffs cited small overall levels of imports, or high levels of imports from developed countries as the reason they had not introduced supplier audits. A number said buyers might informally look at conditions - though experts in social responsibility auditing do not believe such checks catch problems.

Bunnings Warehouse checked suppliers from India were not using child labour.

"I think by and large people aren't checking - we're a nation of small shopkeepers," said Rick Helling, chief executive of Smiths City.

But he believed it would come in time.

Only a few said they had been asked about the history of their goods by customers and, in those cases, the number of inquiries had been tiny. But few believed that meant customers would not react if problems did come to light.

Progressive Enterprises chief executive Richard Umbers said his company, which owns the Foodtown, Woolworths and Countdown chains, sources most of its goods in New Zealand. But, in recent weeks, it has decided to adopt a formal terms of trade agreement for its general merchandise suppliers, a contract which covers labour, health and safety standards, not just price and quality.

"We have to remember we're a large company, we do have a socially responsible role to play," he said.

Many local retailers buy goods indirectly, through importers. A significant number felt that was where the responsibility lay.

"We leave that up to our importers, we see that as their responsibility. We don't check where they're getting the goods from, we check the quality is there," said Jim McBride, general manager of furniture at Harvey Norman in New Zealand.

That confidence may be misplaced. Daniel Silva, secretary of the Importers Institute, which represents 300 New Zealand importers, said he was not aware of any who carried out such checks. But pointing to China's recent history of lifting people out of poverty through success in trade, he did not believe that either importers or retailers should go down that path.

"There's nothing wrong with a bit of frippery and pretending to be holier-than-thou and, in some cases, it even works.

"But to get caught up in it to the point that you go against the trend and are not competitive with others, then a company can find it can lose market share quickly," he said.

Where companies forgot their aim was to put the best merchandise in front of customers and believed their role was to implement social justice, they stopped being retailers.

"And the moment you do that, then someone else will be that retailer."

Silva agreed there was a business risk linked to the supply chain-which he described as "a subtle form of blackmail".

"It is not driven by concern for the consumer, it is a risk you are going to be boycotted by activists."

Although importers would undoubtedly try to avoid obvious examples of poor working conditions, their decisions frequently weren't so black and white.

"I have no doubt there are goods here that have been imported from conditions consumers would find unpalatable."