Discussion Paper 5: Does Better Labour Standard Compliance Pay?

19 Mar 2012

Linking Labour Standard Compliance and Supplier Competitiveness

In the past decade, the focus of the debate concerning labour standards appears to have shifted from the desirability to the efficacy of various forms of labour regulation, notably private and non-governmental schemes in global supply chains. While the burgeoning literature has examined various means by which labour conditions can be improved in global supply chains, the link between labour standard compliance and competitiveness of supplier firms has received little attention.

The lack of research in this area is partly explained by the fact that scholars studying the subject tended to focus on the plight of workers toiling under dismal conditions and various means to regulate unscrupulous firms rather than ways to motivate firms to improve labour conditions. Another reason behind the dearth of studies linking labour standards and competitiveness lies in the difficulties in accessing the firm-level data on working conditions and productivity in global supply chains. Considering that many supplier firms still view labour standard compliance solely as a cost, it is of great importance to examine whether and to what extent improving labour conditions can also help enhance supplier competitiveness.

This paper looks at the nexus between labour standard compliance of supplier firms and their potential for attracting and retaining buyers. For supplier firms to survive and prosper, it is important to attract and retain buyers, in particular those that give sufficient margins and continuous orders. In the apparel industry, buyers are increasingly concentrated and competition among suppliers all over the world has intensified, putting constant downward pressures on price. Moreover, as the industry is marked by seasonal volatility, lack of orders during low seasons could be detrimental to the survival of supplier firms. Having a long-term relationship with buyers can help smooth out these risks. The question then is whether and to what extent better compliance increases the supplier’s chance of attracting and retaining such buyers.


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