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Managing human resources is a key factor in determining the success or failure of a business. From a global viewpoint, Multi-National Companies (MNC) strive to compete to exploit opportunities that globalization offers. This quest for success has paved way for the recognition and importance of effectively managing human resources (Scullion 1995). However, the pursuance of diverse interests of employees (Kelloway et al 2004) of MNCs and the impact of poor HR practices and policies on their productivity, morale and well-being also contribute to failure in business (Tayeb 2005).
In view of this, some theorists (Maslow 1943; Marx 1988; Smith 2003 cited in Blyton et al) argue that an employee s interest which lies in the ability to afford the basic necessities of life is determined by the wage earned and so wage is a primary means of survival. Given that wage is based on labour and work determines the framework to life, fulfilment and identity of an employee; it is important that wage underlines the value and dignity of work by providing a sufficient remuneration for carrying it out. In that way, it creates a rationale for how employees make distinctions between their worth and themselves since the level of their confidence and financial security depicts the value of they earn.
Living wage vs. Minimum wage
Employers are ethically obliged to pay a fair wage whenever possible (Figart 2001). However, whether an employer is legally required to pay wages at least slightly above the basic subsistence level, it doesn t automatically mean that it is sufficient to provide a decent living for the employee as Figart (2001) argues. Waltman (2000) refers to the former as minimum wage and the latter as living wage . Therefore it can be argued that since a minimum wage is influenced by the necessity to balance the needs of workers as well as business interests then a voluntarily paid a living wage is more beneficial than the minimum wage.
The level of living wage is calculated using calculation approach or negotiated approach (Waltman 2000). It is based on the expenditure that is required for a decent standard of living measured by the criteria of the society in which the employee lives (Waltman 2004).
Issues with wages along the supply chain
In the supply chain, payment of wages to employees is given less priority because employers focus more on low-production cost or on deducting administration and raw materials costs as such employees are paid partial wages or denied wages for months. What is more, is that they disrespect minimum wage legislation, discriminate against migrant workers and neglect social contributions by paying informal employees in an informal way (Whitehead 2010).
Presently, campaign movements like Labour behind the Label (LBL), Clean Clothes Campaign (CCC) defend garment workers' efforts worldwide to improve working conditions and they liaise with trade unions, consumer organisations, campaign groups, and charities to achieve their objective.
Commitment to living wage
LBL campaign reports that British clothing retailers like Burberry, Arcadia group, Aurora fashions, Primark, Gap, Next, Monsoon Accessorize and New look, Marks and Spencer (Johnstone 2010) are making commitments to a living wage project. For example, Burberry demonstrates commitment to paying a living wage by stating living wages are paid in section 5.2.5 of its Ethical Trading policy claiming that implementing an ethical sourcing strategy helps it achieve its business objectives (Burberry 2009).
Although many of these high profile British brands in the Clothing industry openly acknowledge the need to increase the poverty wages paid to garment workers in their commodity chain, they tend to concentrate more on workers productivity rather than on rewards. Indeed the situation of wage behind the UK High street is disturbing as garment workers labour excessive hours in pitiable working conditions to produce garments cost over 36 billion a year for high profile British Clothing retailers (LBL report 2009). In spite of this, these workers wages are too low to afford them the basic necessities of life.
Having pointed out how some British clothing retailers have committed to paying a living wage next is a brief description of the nature of clothing business in China.
Nature of the clothing industry in China
The clothing industry in China is a typical buyer-driven chain that is highly intensive in labour (Linfei and Qingliang 2009). The workforce is made up of women where majority are migrants (Chan 2004). It is a typical factory norm to work beyond the legal limit (TRAVAIL 2009) that is approved by the Chinese labour law (Chan 2005).
HR Issues (China Supply Chain)
1. Low wage and piece-rate payment system (Li 2004)
2. Tight labour control, exploitation, physical and sexual abuses, discrimination, health and safety neglect (Amnesty International 2006).
3. Workers are deprived the right to freedom of association and are persecuted for protesting or striking against unfair employment practices.
4. Chinese internal migration regulations subject migrant workers to the economic bondage and exploitation (Amnesty International 2006).
This shows that Chinese garment workers sweat high profits for British clothing brands at the detriment of their dignity, health and above all lives.
Kotler (1998) argues that a PEST analysis (Luffman et al 1996) is a necessary technique to appreciate the potential and operations of a business.
Government s trade restrictions, labour laws and policies (freedom of association).
Price of commodity, labour market (living wage), demand, customer behaviour, taxation on trade and workers.
Fast fashion, employment conditions
Machineries, computers and tools used in the production, packaging and distribution units.
The business case for decent working condition
The awareness of poor working conditions in the garment industry calls for employers to apply ethical reasoning to business practices as well as play ethical roles in managing people. Just as, Bohlander, Snell & Sherman (2001) argue that people play important roles in developing the competitive advantage of a business, a business case should be considered to improve general employment conditions operating within production units owned by suppliers. The rationale for this case is that if garment workers continue to work under inhumane working conditions, this could affect the business in the following ways:
1. Living wage
Smith (1776) argued that an employee who performs manual or industrial labour is more active and efficient when wages are high. Meanwhile, motivation theorists (Maslow 1954, Herzberg 1959, Alderfer 1972 cited in Hume 1995) link remuneration to motivation and Steel-Johnson et al (2000) relate motivation to ability and productivity. Therefore, unfair pay leads to less motivation, reduced productivity and decreased efficiency. Consequently, the company suffers high employee turn-over and since there s a shortage of skilled labour (Wenfang 2011) in the supply base (China), recruiting more workers and retaining existing workers will be an unnecessary cost to put up with as research indicates (Arkin 2011). For instance, Barclays bank has benefited from paying a living wage (ibid). On the contrary, an economic critique argues that living wage contributes to unemployment, inflation and business failure (ibid). However, the unavailability of evidence (ibid) makes this argument unreliable. To this end, it can be argued that until there is a concrete proof that paying a living wage produces adverse outcomes, there is nothing wrong with paying workers wages that meet the cost of their basic needs and standard of living.
2. Branding, Business reputation and Customer relationship:
Researchers have linked branding to high profits (Gobe 2001), differentiation, enhanced customer loyalty and satisfaction (Hollensen 2003) and competitive advantage (Martin and Beaumont 2003).Therefore, a business is at the risk of losing customers and investors if the press and other interested groups like ILO, NGOs, ethical shoppers (Brown 2010) and campaign movements such as CCC, LBL find out about its poor employment conditions. The impact of this tainting exposure may affect the relationship it has with consumers. For instance, Marks and Spencer s (M&S) faced a high profile embarrassment in December 2010 for exploiting its workers in the garment industry (Chamberlain, G. (2010). Therefore, retaining an unethical trading system will weaken customer relationship as well as tarnish the image and reputation of the business thus diminishing its opportunity for a competitive edge.
3. Statutory standards and Ethical Code compliance:
Moreover, the risk of losing business and tainting corporate image is high if its suppliers do not adhere to the legal standards concerning wages, health and safety, work hours and child labour plus ethically apply codes of labour practice set by for instance the LBL s Ethical Trading Initiative Code (ETI). More so, if a company decides to take business somewhere else it contributes to unemployment and unsavoury outcomes; it is like adding insult to injury. For example, in year 2000, GAP suffered from such predicament (Kenyon et al 2000) but made amends by ensuring its suppliers complied with ethical codes and legal standards.
4. Health, safety and work environment
Furthermore, if workers produce in a hazardous work environment, it can affect the quality of work (garments will be badly sewn or soiled with dirt), disrupt their work pattern which will prolong production and supply time likewise the health and safety of workers. Of course, the outcome is cost incentive (high staff turnover and low product turnover).
5. Management of migrant workers
Additionally, migrant workers dominate the supply chain and the attraction for recruiting migrant workers lie in their satisfactory work ethics (willingness to work). However, suppliers tend to indirectly recruit and employ migrant workers and this leads to high possibilities of abuse and increased costs. Also, migrant workers are not provided with sufficient training, effective dispute resolution and are not protected under laws at national level. As such, Pfeffer (1998) argues that managing people effectively can significantly enhance economic performance. Therefore, managing people ineffectively can increase turnover, absenteeism, reduce productivity as well as tarnish corporate image and attract unnecessary media cost.
6. Buying practices
So far the issue of paying a living wage and improving working conditions have been raised. Equally, purchasing patterns such as changing orders at the eleventh hour, shortening lead times and insisting on low prices from suppliers leads to unnecessary overtime and payment of low wage (ETI 2009). Thus by adopting an ethical pattern to procurement, the business prevents substandard produce, delayed supply, extra cost and short-term supplier relationship. What is more is the reputational risk that follows with purchasing practices that violate human rights. Of course a sustainable retail company needs a long-term relationship with an ethical supplier.
7. Corporate Social Responsibility (CSR)
Embracing a CSR strategy towards improving employment conditions requires the moral obligation of a business towards others who are affected by the organisations actions (Sims 2003). Sinzig (2010) argues that CSR is the voluntary engagement of a company to undertake ethical practices in labour and employment by enhancing the workplace of all employees by going beyond existing regulatory standards and meeting stakeholder s claims . In a nutshell, Zadek (2007) argues that the pursuit of CSR strategy provides the organisation with at least the following specific business and HR benefits.
Improved customer loyalty
Improved employee productivity, satisfaction, commitment, retention and recruitment practice
Less legal issues and reduced conflict
Higher profits and lower capital costs
Access to capital
Increased organisational performance
Superior brand name
Innovation and Learning
Barriers to introducing change:
There are obstacles that work against introducing change. They are listed below as follows:
Academics (Briscoe and Schuler, 2004) argue that paying a living wage results to unemployment, inflation, business close down, immigration pitfall and work shortage yet economist argue that it increases purchasing power and enhances productivity (Sidney and Webb 1897). Similarly, Waltman (2004) argues that there are no evidences to prove the reality of adverse outcomes claimed by anti-living wage supporters and Arkin (2011) concurs by asserting that the added value from higher pay is proportionally greater than the cost of the increase. Nevertheless an obstacle here is computing a fair profit rate taking into account the company the bears cost in organising production, selling finished products, ensuring continuity and capital risk. In addition, because paying a living wage is not bound by law, suppliers would argue that the government increases the statutory minimum wage in preference to committing to paying a non-statutory living wage. It could then be argued that minimum wage should represent a floor while living wage should represent ethical practice standard. On the other hand since minimum wages differ according to countries - Britain is 5.93 per hour (ONS 2010) and China is 800.0 RMB per month ( 75.3) (TRAVAIL legal databases 2009) - it becomes problematic justifying the case in paying workers in China the same living wage as in London ( 7.85).
Compliance and monitoring:
Another barrier to introducing change is noncompliance. As regards suppliers complying with ethical standards, retailers adopt a template system in bringing in change because it saves them time to supervise. Unfortunately, this doesn t help in China because suppliers tend to falsify documents, train workers to lie or bribe auditors (Ruwitch 2008) in order to sustain good relationship with retailers. Therefore, audit results become unreliable to use. Likewise, when a supply base is used by several brands, it tends to be shady about its work practices when undergoing an audit from an external firm.
Barriers to operative HR policy and practice:
Convergence and Divergence:
Brewster et al (2002) point out that the effectiveness of global HRM depends on the ability to judge the extent to which an organisation should implement similar practices across the globe (converge) or adapt them to suit local conditions (diverge). Therefore, reaching a balance between laws, practices or policies to be implemented (International or local) and which will achieve better outcomes tend to frustrate the operationalization of HR policies and practices.
Gerhart and Fang (2005) argue that there are discrepancies in centrality of markets, institutions, regulations, collective bargaining and labour-force characteristics between global environments and the influence of these issues create problems in managing people. For example, the ban on freedom of association in China by the government is seen as infringing on civil rights in a British and international setting. Therefore implementing policies and practices like employee involvement and collective bargaining over wages can be difficult to guarantee because of persecution workers receive from the Chinese government.
Recruitment and cost:
The need to allocate to senior management the responsibility of implementing this ethical trade action plan in the supply base requires intensive training. On the other hand, the size of the supply base will entail recruiting and financing more human resources to execute the project. Consequently, this could delay operations. Also, it is expensive to hire audit specialist considering the size of the supply base and economy. Moreover, recruiting and training the internal workforce on skills that prepare them to strictly inspect and report labour practices will attract a higher financial plan. What is more, is the issue of measuring expatriates operations since performance standards differ across borders.
Recommendation and Conclusion
A living wage should underline the value and dignity of work as well as be sufficient to afford basic needs. The benefit of setting up a policy that guides the conduct of the business as well as its workers varies from legal protection to better consumer and public relationship.
Therefore, it is important that the retail company considers its current business practices and provides its suppliers with improved working settings through incorporating ethical trading practices. This can be done by employing a systematic plan of action that embraces a commitment in integrating ethical trading, monitoring and supervising development effectively as well as training employees within the organisation and its supply base.
It is clear that retaining a low road competitive strategy rather than a high road approach to competitiveness can hinder profit and also violate human rights. Therefore to ethically apply a cost minimization strategy, retailers should improve on the technology used in the production unit. Replacing manual processes with automated operations and increasing the flexibility of machines will speed up the production cycle and reduce lead time, cost of labour and production. This innovation will control purchasing practice, overtime and maximise profits which will be needed to pay workers a living wage.