Labour standards are a win-win for businesses looking to enhance competitiveness and credibility

ILO India, Director, Dagmar Walter speaks at the International convention on sustainable trade and standards

Statement | New Delhi, India | 17 September 2018
As many of you would know, the International Labour Organization is the only UN agency with a unique tripartite governance structure, comprising of government, businesses and workers. It is an international standard setting body and for almost 100 years now the ILO has been providing support to its 187 member States in enhancing their legal frameworks and policies in the world of work. India is a founding member of the ILO. In many ways India has contributed in shaping ILO’s global mandate of Decent Work for All and has shaped important ILO conventions.

The ILO 2016 Report on Decent Work in Global Supply Chains clearly presents evidence of gains in sourcing countries due to GSCs in terms of economic growth, job creation, poverty reduction, and technology transfer and skill development.

However, evidence also shows that the dynamics of production and employment relations in GSC, also have had negative impacts on working conditions and job quality in sourcing countries. Some of the more shocking examples were the collapse of the Rana Plaza building in Bangladesh in 2013 and the factory fires in Pakistan in 2012, which claimed the lives of over 1,500 people and sparked a call for global action to achieve decent working conditions in the global supply chains.

We know that the multinational enterprises, lead buyers and destination countries, often determine the rules, terms and conditions in Global Supply Chains. Adherence to international standards – whether labour or environmental – form part of such conditions. Hence, Global supply chains have a strong link to trade agreements. Nearly half of the trade agreements concluded in the past five years included either a labour chapter or labour provisions that make reference to international labour standards and the ILO instruments. It is interesting to note that one-quarter of the trade agreements with the labour provisions are between developing economy partners. More and more GSCs are influenced by MNEs from so called developing economies

Labour standards have different connotations for real players in the economy. Sometimes it is perceived to protect brand reputation and meet consumer expectations, and at other times it is seen as non-tariff barriers for market protection. But are labour standards a necessary constraint in today’s global business environment? Or do they actually make business sense? I would argue for both. For achieving the 2030 Sustainable Development Agenda, solutions must be business-led. This approach will help us achieve better productivity through improved working conditions which will then result in sustainable businesses and enterprises.

Let me tell you why standards are crucial:

Firstly, the ILS provide level playing fields for countries to compete in the global economy. It helps governments and the employers to avoid the temptation of lowering labour standards in the belief that such an action could give them a greater comparative advantage in international trade. Because international labour standards are minimum standards adopted by governments and the social partners, it is in everyone’s interest to see these rules applied across the board, so that those who do not put them into practice do not undermine the efforts of those who do.

Secondly, they help to improve enterprise level productivity. International labour standards are sometimes perceived by enterprises as entailing significant unnecessary costs and thus hindering their performance. A large body of research and impact evaluations, including ILO’s enterprise development initiatives such as the Better Work and the SCORE programmes, however indicate that compliance with international labour standards rather result in improved productivity and quality performance.

To illustrate— a higher wage and regulated working time standards and respect for equality in over 1500 ILO Better Work supported garment factories in more than 7 countries has helped to lower employee turnover by 14% due to more satisfied workers. First tier suppliers, in partnership with lead apparel brands, have thus been able to meet international labour standards. Similarly, investment in worker-manager cooperative relationships, in over 1400 ILO SCORE trained factories in more than 9 countries, shows better quality production by way of fall in defect rates and increase in on-time delivery performance. Cooperative work environments has also boosted operational equipment efficiency by nearly 20 per cent and more. Investment in health and safety standards can considerably bring down the cost of accidents, prevent absenteeism, and also lower health care fees. Providing social as well as employment protection encourages workers to take risks and to innovate. This is critical in today’s rapidly changing world so as to improve market responsiveness of firms. Freedom of association and collective bargaining can lead to better labour–management consultation and cooperation, thus reducing the number of costly labour conflicts and enhancing social stability.

In India alone, since 2012, more than 110 small and medium enterprises across light engineering to ready-made garment sector have been equipped to better adapt lean management practices by improving worker-manager dialogue process and human resource management. Recognizing the potential benefit of ILO SCORE training, 10 Indian corporates are at present promoting SCORE in their supply chain through FICCI. In 2016, the Ministry of Micro Small and Medium Enterprise endorsed its use in economic clusters, supported by its Lean Manufacturing Competitive Scheme (LMCS).

Thirdly, the value of labour standards doesn’t go unnoticed by foreign investors. Many studies have shown that when foreign investors select countries for investment or look for enterprises for joint ventures, they assess the ranking of workforce quality and the political and social stability above just low labour costs. There is little evidence that support the theory that countries and enterprises which do not respect labour standards are more competitive in the global economy and are able to sustain competitiveness in the long term.

Clearly, labour standards is at the heart of competitive enterprises and countries. It helps achieve quality standards, on-time delivery and most importantly ease market competitiveness. Standards help us understand the significance of good working conditions. When enterprises invest in their employees, motivate them towards achieving resource efficiency, promote a culture of accountability and ownership of performance – it automatically results in increased productivity and competitiveness. 

Before many of you conclude ILO only develops standards with no practical links to real economy, let me clarify, ILO’s unique tripartite structure provides it window to the real economy. The Employers and Workers representatives together with government develop these labour standards. This in fact helps the ILO to translate its mandate of Decent Work for All into action.

The ILO Tripartite Declaration of Principles concerning multinational enterprises and social policy, called the ILO MNE Declaration is widely accepted as the most authoritative reference point for both public and private social responsibility initiatives. The ILO MNE Declaration provides detailed guidance on how companies can maximize their positive contributions to economic and social development and while minimizinge the negative impacts , also environmental, of their operations, including environmental, as well as better manage management the of global supply chains. 

The ILO has a dynamic technical “One Stop Shop”  resource for businesses that provides dedicated information on labour standards and responds to questions on trade, GSC and MNE Declaration in particular. It also offers frequent trainings to companies - one such course is “International Labour Standards and Corporate Social responsibility: Understanding worker’s rights in the framework of due diligence”. The ILO is also a partner of the UN Global Compact Action Platform on Decent Work in Global Supply Chains, working in partnership with OHCHR, UNCTAD, FAO, IFC, OECD, EU and others – mostly in Africa and Asia.

To conclude, there is a growing realization that compliance to Standards through certifications and audits itself do not yield the results we desire as the root causes are left unaddressed. Instead, it only increases the cost of compliance and leads to audit fatigue for suppliers. ILO therefore encourages leading buyers and trading countries to invest in capacity building. Recently, on request from the Indian Apparel Export Promotion Council (AEPC), ILO has developed a Good Practice Manual for ready-made garment (RMG) factories to support Indian factories to go beyond mere compliance and better understand the business case of internalizing standards in factory operations.

Thankyou for your attention. I look forward to the discussion.