International Law

The World is Watching Your China Factory

By Stan

If you didn’t already realize that every single part of a company’s global operations are now under a magnifying glass, check this out:

The University of Michigan announced on Monday that it was ending its apparel licensing agreement with the Russell Corporation, becoming the 12th university to do so in response to the company’s decision to close a unionized factory in Honduras.

University of Michigan officials said an agreement under which Russell made T-shirts, sweatshirts and fleeces with university logos would end as of March 31 because Russell had violated the university’s code of conduct calling on licensees to guarantee the basic rights of workers.

So what happened here? Russell’s factory was unionizing, and the union was in a dispute with the owner. Coincidentally, Russell decided to pull out, claiming of course that the move had nothing to do with the union status of the workforce (right).

The University of Michigan, along with other licensors, adhered to their codes of conduct regarding international labor principles and ended their relationship with Russell.

Add this to the list of things to worry about as a foreign investor. In China, you already had to worry about labor conditions, to a certain extent, and you certainly need to worry about product liability/standards these days.

Granted, universities and other public institutions are not typical licensors. Their codes of conduct may be more sensitive than that of a private company. That being said, as information is more readily available and Net activism gains even more traction (remember that there are going to be a lot of pissed off unemployed people out there with PCs and nothing to do over the next few years), I think we will start to see more of this in the future. There really is no place to hide.

How should a company respond to this? Obviously once you have licensors pulling out, you’ve already done something wrong. Some of this is PR and some of it involves poor decision making in the first place. Now, I don’t have any idea what happened at the Russell factory in Honduras, so no further comment on that. But if you have a situation brewing in a factory in China, even if it is out in the middle of nowhere, I guarantee that all the ugly details will come out (to your detriment). Assume at the beginning that there will be de facto transparency. It’s amazing, by the way, how different the decision making process becomes when everyone assumes transparency.

The other obvious things to do include: put a disaster plan in place that includes potential issues like labor, IP infringement, product quality, and disputes with your partner (if you have one); develop a CSR plan/code of conduct that applies to your China operations (applicable globally is best, if possible) and put in place when you set up operations; know your business partners (something tells me that Russell might have handled this differently if they had known how their licensors would react).

Full post as published by China Hearsay on February 24, 2009 (boomark / email).