Suppliers' Compliance with MNCs' Codes of Conduct: Behind the Scenes at Chinese Toy Suppliers

Key Insights for Managers

A study of nine Chinese factories supplying the three largest Swedish toy retailers found varying compliance with the buyers’ codes of conduct, and concluded that many suppliers deceived auditors from detecting non-compliance. Based on more than 100 supplier employee interviews conducted in 2004, author Niklas Egels-Zandén found that nearly all suppliers complied with the codes’ criteria relating to child labor, but nearly half complied with the criteria governing minimum wage, overtime compensation, physical examination, and employee contract. Only a few complied in the domains of maximum working days and the provision of pension and accident insurance, only one met the health and safety criterion, and none complied with working hours. Overall, none of the suppliers complied in all areas, one third complied in just one single area, and less than one third complied with the majority of areas.

In further interviews, the author found that the Swedish toy retailers were unaware of this poor compliance, which the author mainly attributed to factories having developed mechanisms to deceive auditors. Deception techniques discovered included managers instructing employees what to say to auditors, offering compensation for “correct” answers, forging salary lists and timecards (three), hiding part of the workforce, and forging employee contracts.