Tuesday, May 15, 2007

Emerging markets: suppliers differentiating themselves

I appreciate Stephen's reponse to yesterday's post (check it out -its a good one!) and here is his key point which I didn't articulate as clearly "I would find it counter-productive to promote relaxed standards for emerging markets, meanwhile promoting the idea of embracing progressive CSR principles as a way of creating both social and economic value."

This conversation is reminding me of my trip to Sri Lanka in December 2005. I joined my colleague Naoko from the secretariat to attend a working group meeting of the Apparel and Footwear Sector Supplement hosted by a supplier to many major brands called MAS Holdings in Columbo. Besides being a personally emotional trip due to the one year anniversary of the deadly tsunami, it was also a professionally inspiring trip.

It seems the business community had decided that it simply could not compete with its massive neighbours India and China on labor prices, so it had no choice but to compete on quality instead. As a result the government ratified nearly 30 international conventions on environment, labor, and human rights, and is on an agressive time frame for implementation. Interesting to note that Sri Lanka has ratified many conventions that leading economies such as Australia and the USA have not even ratified - where the customer base for most Sri Lankan produced products are located!

Leading Sri Lankan businesses are already shifting their practices to reflect these new higher standards, and they are positioning themselves as uniquely competitive in the marketplace as they are able to deliver quality goods at a good price but within the context of the environmental, labor, and human rights conditions that European and North American discerning consumers expect.

Governments, businesses, and workers seem to be united behind the strategy for Sri Lanka as a whole to develop a reputation for quality based on their environmental and social commitments - thereby making it worth that extra few cents for fabrics sourced there and helping to improve working and living conditions for an entire nation in the process. My understanding is that Sri Lanka is already being rewarded under trade agreements from 'Western' nations as a result.

From GRI's perspective, the public disclosure aspect is a vital ingredient in this picture - companies must prove they are performing to higher social and environmental standards through the use of a credible public disclosure standard.

1 comment:

Stephen said...

Alyson, the Sri Lankan example is a great illustration of how a shift in business practices can be used as a competitive advantage. It is impressive that they were able to take such steps on a National scale and differentiate an entire sector of their economy. Will Australia and other Western countries follow suit?

In this case, economic value was created by leveraging progressive business practices as a means of differentiation in the market. However, I think that value can also be created internally within the company's operations, and, it could possibly have great impact in companies operating in emerging markets.

Probably the simplest example of this would be with the case of progressive labour practices. Many emerging markets, are lax on labour laws, minimum wages, employee benefits, etc. However, when companies take it upon themselves to provide that support, stability, and chance for advancement in their workforce for translates into positives such as increasing productivity, decreasing turnover, and attracting the best and brightest. I believe that these positive are much more marked in such emerging markets because the companies are filling a vacuum of sorts in those regions – those companies with higher standards are fewer and far between. A stable manufacturing job in India would be much harder to find than in the EU and if I was an Indian laborer I can best tell you I would do everything I could to hold on to it.

I have spent some time living in Mexico, and have noticed such practices amongst the large Grupos based out of Monterrey. The ALFA's and the CEMEX's who are the companies based in emerging markets that have factory operating contracts in Canada or acquiring $5 billion UK companies. Similar to your April 18th post, "A race to the top or the bottom?" These are globalization's offspring and they are making progress because they adhere to higher standards, not because they operate under slack national laws.

Stephen Albinati