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Managing Social Compliance in a Time of Social Change

Rapidly evolving socioeconomic conditions in China have compounded the challenge of creating systemic change in children’s product factories.

Written by Christian Ewert

Rapidly evolving socioeconomic conditions in China have compounded the challenge of creating systemic change in children’s product factories. They have also underscored the growing importance of combining education and training programs with traditional supply chain monitoring aimed at achieving sustainable improvement.

The once-plentiful labor pool in China, where 80% of the world’s toys are manufactured, is shrinking; blue-collar wages have quadrupled; raw material costs have risen sharply; and the RMB has appreciated. At the same time, there is continuous downward pressure on the prices buyers will pay for the goods produced. New and innovative approaches were taken by the children’s products industry to meet these challenges and to avoid putting at risk the significant progress already achieved by the more than 2,400 factories and 925 brands, retailers and licensors participating in the ICTI CARE Process, the industry’s ethical manufacturing program that was launched by the International Council of Toy Industries in 2003.

In 2001, members of the International Council of Toy Industries (ICTI) established an industry-wide Code of Business Practices that laid out the basic principles for fair treatment of factory workers and committed its members to abide by them. Two years later, ICTI took the second major step: it established a social compliance auditing system overseen by the ICTI CARE Foundation (ICF) to ensure that toy factories were matching their actions to the principles of the Code. Toy brands, retailers and licensors came together and created an independent industry-wide initiative known as the ICTI CARE Process (ICP), a single auditing protocol designed to monitor factory working conditions and to eliminate audit duplication. The initiative accepts third party auditors who have been trained in a course approved by the International Register of Certificated Auditors (IRCA). This has led to significant improvement in the treatment of migrant workers and factory health and safety practices, as well as audit integrity.

In an endorsement of what ICTI is doing, Jane Nelson, who teaches corporate social responsibility at Harvard’s Kennedy School of Government, notes that, “Collective action within an industry sector, like the ICP initiative, can play a crucial role in spreading social and ethical standards down the supply chain.” (Prof. Nelson also serves on the ICF’s governing board.)

The ICF recognized early on that a pass/fail approach to compliance auditing was not working for some parts of its checklist. There were frequent attempts to falsify working hour records or to pay below the government-mandated scale. Constant price reductions and shortened delivery times by brands and retailers continued to skew factory management practices and working hour audit results. Moreover, many factory managers lacked the business skills needed to attain systemic improvement in wages and working hours.

Adopting a Continuous Improvement Process

To help factories achieve ICP compliance goals and meet the corporate responsibility standards expected by multinational brands and retailers, a continuous improvement process for wages and working hours was introduced to uncover workplace reality and improve it over a fixed timeframe. While the aim is to achieve full compliance with the current ICP standard of a 66-hour workweek, ICP recognized that industrial reality and seasonal demand would not allow every factory to meet that requirement immediately and remain profitable.

Suppliers were offered a degree of flexibility that allowed them to improve at a more sustainable pace. Payment of correct compensation and benefits to workers, along with disclosure of true working hours practices, was a required condition. In return, working hour levels would be reduced gradually with the goal of achieving full compliance over a fixed period of time. Those that fail to show significant improvement within two years are terminated from the program for at least six months. This approach has resulted in increased transparency of working hours records and the beginnings of steady progress toward full compliance.

In order to promote a more proactive approach, factories are encouraged to create their own internal monitoring (self-declaration) programs and, in cooperation with ICP, this seems to be helping.

Focus on Training and Capacity Building

Management training programs have been developed for factories that require assistance in meeting ICP standards sustainably. Managers learn how to identify the root causes of non-compliance and how to effect operational efficiencies that can improve workings hours and overtime practices.

China’s new factory workers are more tech-savvy and better informed about their rights than their parents’ generation. Those employed in ICP factories place up to 350 calls per month to the confidential, toll-free helpline service run for the ICP by an independent Chinese NGO. About 85% of the callers seek assistance resolving personal and professional issues, and 15% call to report grievances. ICP staff immediately investigates complaints of a serious nature. The helpline serves as a valuable monitoring mechanism and is an integral part of the ICP. Additionally, a mobile phone service has recently been added to the previous landline-only facility.

A pilot train-the-trainer worker education program, jointly funded by the ICTI CARE Foundation and Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) taught approximately 4,000 workers how to look after their own health and safety and how to resolve worker-management conflicts. Nearly one million workers have also received pocket-sized “CARE Cards”, which inform them of their labor rights and provide useful contact numbers and the toll-free helpline number.

The Business Case for Better Social Performance

The inevitable macroeconomic and social evolution in China continues to present challenges, and it has become increasingly clear that resolving business issues is the best way to address social issues sustainably. There is increased international attention to corporate social performance in China and elsewhere in Asia, where ICP’s flexible approach with suppliers and provision of capacity building support is driving the desired improvements in factory working conditions, which in turn have helped factories to survive by making them more productive and therefore more profitable. The “stick-and-carrot” approach is proving good for business.


Christian Ewert leads the ICTI CARE Process (ICP) in his role as President and CEO of the International Council of Toy Industries (ICTI) CARE Foundation an independent non-profit organization chartered in New York. His responsibilities include supervising ICP’s programs, as well as fundraising and outreach activities with toy associations, global and national brands and retailers. The ICP is the worldwide children’s products industry’s ethical manufacturing program aimed at ensuring safe and humane workplace environments for toy factory workers worldwide. To achieve these goals, it provides education, training and a single, fair, thorough and consistent monitoring program for factories.

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