Outsourcing & compliance for industrial relations
Outsourcing & compliance for industrial relations

Outsourcing & compliance for industrial relations

Enterprises in India desiring to be a supplier to any of the leading international brands, especially in the apparel business need to be audited and have a valid certification that they comply with SA8000 standard, thinks
Dr Rajen Mehrotra

Companies were traditionally manufacturing products and performing various services, within their enterprise, including servicing their customers to whom the products were sold. For this the companies had their own staff, i.e., employees working at different levels within the company. This practice has gone through a major change where in the business strategy world-over for companies after the end of cold war (i.e. 1989) has been outsourcing wherever feasible and viable. The present day approach by many large companies in India is, to hire another party outside the company to manufacture components or the product if possible, and also obtain the services of an external agency for services needed by the company or for servicing the customers and the same is referred as outsourcing.

With this approach, the number of employees working for the company over a period of time has got restructured, leading to reduction of employees covered under the ambit of the Industrial Disputes Act, 1947. At the same time, the employees working for the enterprise carrying out the outsourced activity based on their job content are covered under the ambit of the Industrial Disputes Act, 1947. In the initial years, these enterprises carrying out the outsourced service were small and had a few employees, but presently most have grown in size and have a substantial workforce, hence unionisation of workforce does takes place and issues of industrial relations do come up.

While the enterprises manufacturing components or the product or providing the service to the company is an independent enterprise, but it is an important vendor of the supply chain for the company. Hence any industrial unrest or turbulence effecting the quantity and quality of the component or products or services in the supply chain from any of the vendors is bound to have an adverse impact on the functioning of the company.

Social Accountability (SA) 8000 International buyers, who have adopted a strategy of outsourcing, which involves getting their specified components or products, manufactured in another country in quite a few cases call upon the supplier to comply with social accountability standard called SA8000. This in many cases is a must. This standard is the leading social certification standard for factories and organizations across the globe. It was established by Social Accountability International in 1997 as a multi-stakeholder initiative. Over the years, the standard has evolved into an overall framework that helps certified organisations demonstrate their dedication to the fair treatment of workers across industries and in any country from where the international buyer gets the products manufactured. Enterprises in India desiring to be a supplier to any of the leading international brands, especially in the apparel business need to be audited and have a valid certification that they comply with SA8000 standard.

SA8000 measures social performance in eight areas [i.e. child labour, forced or compulsory labour, health and safety, freedom of association and right to collective bargaining, discrimination, disciplinary practices, working hours, remuneration and management system] that are important to social accountability in workplaces, anchored by a management system element that drives continuous improvement in all areas of the standard. International buyers to safe guard the reputation of their brands and to ensure social compliance in their supply chains, without sacrificing business interests, ask the supplier enterprises to be SA8000 compliant.

Code of conduct
The vast majority of supply chain codes of conduct by international buyers focus exclusively on the requirements to be imposed on suppliers. This is the traditional "top-down" approach wherein the buyer dictates their expectations to the supplier, as the buyer has ample choice and hence suppliers have to comply, except where suppliers are original equipment manufacturers (OEMs) and hence it is not possible for the buyer to dictate. There is need for a collaborative approach, as there are certain limitations of the supplier, and there is a tendency by the large size buyers on squeezing the supplier with reference to price.

Most suppliers are vendors to large scale companies that are outsourcing manufacturing of components or the products and desire uninterrupted supply. Most of these supplier vendor enterprises pay minimum wages or slightly higher than the minimum wages to their workforce and try to ensure that their operations run smoothly and there are no interruptions. At the same time those enterprises that are SA8000 compliant have one of the social performance indicator which states "Freedom of Association and Right to Collective Bargaining", hence the workers of these enterprises could have a trade union and also raise a demand for improvement in their existing conditions of employment leading to negotiations and collective bargain. In the event the demands are not mutually settled, it could lead to industrial relations issues.

Companies like IKEA and many other international buyers conduct periodic audits with their suppliers, and when they observe deviations in the prescribed code of conduct, they give time to the supplier to carry out the corrections in the deviation. If the corrections in the observed deviation are not carried out in specified time period, then the supplier is black listed and dropped from being a vendor.

There are vendors that are designated as preferred vendors by the buyers, which facilitate them in getting higher volume of business and in certain cases a better price.

ILO's effort The Employers' Wing of the International Labour Organization (ILO), Geneva through the International Training Centre (ITC) Turin, Italy with the support of The Walt Disney Company, USA designed a programme on Responsible Business Conduct (RBC) and Occupational Safety & Health (OSH) in supply chain intermediaries for enterprises. Under this programme, the ILO-trained participants from four countries (i.e. India, Indonesia, Philippines and Thailand) that underwent training, which involved distance learning of five weeks (i.e from 30 July to 2 September 2018) followed by a face to face learning of one week (i.e. from September 10-14, 2018) in Bangkok, Thailand.

The issues impacting RBC covered in the training were: child labour, forced labour overtime, minimum salary, discrimination, freedom of association and right to collective bargaining and social security. These are also part of ILO Declaration on Fundamental Principles and Rights at Work adopted by the Governing Body of ILO in June 1998 covering ILO's eight core conventions {i.e. freedom of association and right to collective bargaining (C 87 & C 98), forced labour (C 29 & C 105), child labour (C 138 and C 182) and discrimination (C 100 and C 111)}. Violation of any of these cited above is being unfair to the labour that produces these components or the products for the buyer.

Also the issues impacting OSH covered in the training are [introduction to safety and health at work, risk assessment, accidents prevention and reporting, motivating workers: leadership and supervision, management of prevention, internal emergency plan, hazardous substances, fire and explosion, electricity, tools, machines and appliances, hoist, lift and bear, trip, slip and fall, work at height, special works, confined spaces, radiation, asbestos, noise and vibrations, ergonomics, PPE, safety and health signalisation, harassment and violence at work, drugs and alcohol awareness , work permits, emergency responses, musculoskeletal disorders, and health and safety committees.

This is an effort by ILO to facilitate the employer organisations in India, Indonesia, Philippines and Thailand to have master trainers in each country that can facilitate enterprises in ensuring compliance of Responsible Business Conduct (RBC) and Occupational Safety & Health (OSH) in supply chain intermediaries of enterprises in each of these countries. For India eleven master trainers were trained and the author was a beneficiary of this training as a nominee of Employers' Federation of India (EFI).

Presently the media as well as NGOs in certain parts of the world are active in undertaking investigation and bringing out violations in the area of RBC and OSH, which has an impact on the reputation of the brand of the buyer, thus effecting business both for the buyer as well as the supplier. It is in the interest of both the buyer as well as the suppliers in India that the issues mentioned under RBC and OSH is complied with and these can also be part of the code of conduct specified by the buyers in India.

Whenever a supplier fails to meet the quality and quantity requirement as per the agreed delivery schedule with the buyer, the supply chain of the buyer gets impacted. The problems can be for various reasons some of which are listed below:

  • Inadequate compliance with the regulatory frame work,
  • non timely supply of raw material,
  • non compliance of quality specifications with respect to raw material,
  • limitation of production capacity,
  • difficulties in the operation of the plant and machinery due to breakdowns,
  • insufficient availability of working capital
  • shortage of trained workforce including absenteeism, and
  • Industrial relations issues due to unresolved issues.

The suppliers in India need to develop and implement systems for managing not only the items listed above but also others that can affect the supply chain. In the event the supplier is likely to fail in the timely supply, then the supplier needs to keep the buyer informed in advance, so that the buyer can take appropriate timely action.

Presently, the number of employees working for the enterprise carrying out the outsourced activity based on their job content is substantial. In the context of India these employees are covered under the ambit of the Industrial Disputes Act 1947, hence issues of Industrial Relations are bound to come up at some stage wherein the employees will bargain for improved working conditions, better wages and improved welfare.

Buyers in India need to evolve a code of conduct with suppliers incorporating items covered under SA8000, RBC and OSH as mentioned above.

Also the vendor enterprises need to not only comply with the issues listed under SA8000, RBC and OSH, but also take preventive action to avoid industrial relations turbulence, which affect the business and the supply chain.

About the author
Dr Rajen Mehrotra
is an Immediate Past President of Industrial Relations Institute of India (IRII), Former Senior Employers' Specialist for South Asian Region with International Labour Organization (ILO) and Former Corporate Head of HR with ACC. and Former Corporate Head of Manufacturing and HR with Novartis India. 

He can be contacted on: rajenmehrotra@gmail.com

Published in February 2019 issue of Current Labour Reports

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