by Greg Distelhorst
While no one advocates for labor abuses, poor working conditions are often seen as an inevitable consequence of global trade. Producers in less-developed countries compete by keeping costs low. Conventional wisdom holds that improving working conditions (which typically costs money) would undermine the competitive advantage these firms enjoy.
Our research suggests an alternative to this race to the bottom. It involves replacing traditional mass manufacturing with “lean manufacturing” principles. Over the last thirty years, the lean approach — developed by Japanese automakers — has permeated the manufacturing sector in developed countries, but is much less commonly used in the developing world.
Here’s a simplified description of the difference between the two approaches. Traditional mass manufacturing is based on principles of “Scientific Management” that date back to the 19th century. Workers specialize in simple, highly routinized operations. They are incentivized to complete operations as quickly as possible. Managers hold virtually all decision-making authority.
In the lean-manufacturing context, in contrast, assembly line workers learn to execute a variety of production tasks, take responsibility for product quality, and are encouraged to find ways to improve the production process. In addition to improved product quality and delivery times, the lean approach has been linked to improved terms of employment. Workers tend to earn more and report higher engagement with their jobs.
Could lean manufacturing have a similar positive impact on jobs in the developing world? The conventional wisdom has ranged from skepticism that lean could be successfully applied in places like Vietnam and India, to the hypothesis that lean actually exposes workers to greater risk of exploitation and injury than mass manufacturing. However, until recently there was little evidence on this question in the countries that dominate global markets in low-cost manufacturing.
To examine this possibility, I conducted research on recent developments in Nike Inc’s apparel supply chain with Jens Hainmueller of Stanford University and Richard M. Locke of Brown University. In the mid-2000s, Nike embarked on a program to introduce lean manufacturing to its apparel suppliers in the developing world. It secured support from suppliers, offered extensive training to factory management, and inspected production lines for adoption of the new management practices. The initiative sought to improve manufacturing operations — to deliver high-quality products in relatively small batches and on shorter production deadlines.
Our research focused not on the success of this initiative, per se, but on the impact of lean production on the workplace. Using factory audits of wages, work hours, disciplinary practices, health and safety, and environmental compliance, we looked at whether the transition from traditional mass manufacturing to lean manufacturing had any impact on factory compliance with the standards of decent employment.
Examining lean’s impact across eleven developing countries, we found that factories that adopted lean manufacturing improved compliance with labor standards. On average, serious violations of labor standards fell by fifteen percentage points, from 40% of factories to 25%. These labor compliance ratings primarily reflect factory wages, benefits, and rest days — important issues that shape workers’ take-home pay and work-life balance.
We think that the key to these performance improvements is the new role that workers play in lean manufacturing. While the production system requires more worker skill and effort, employers have incentives to retain these valuable workers through improved working conditions.
Crucially, neither economic underdevelopment, anemic regulation, nor government corruption prevent manufacturers from reorganizing manufacturing in these ways. However, a lack of managerial know-how and the risks of changing established ways of doing business may still pose formidable barriers.
These findings suggest that a shift in managerial approach may have a constructive role to play in alleviating sweatshop labor conditions.
Nike and other multinationals are not the only ones promoting this view. The International Labor Organization promotes upgraded human resource management practices through its Better Work program, a partnership with the International Finance Corporation that now reaches factories in eight developing countries. Specialized consultancies like Impactt also provide management training that emphasizes the economic returns of reorganizing the workplace in ways that also support better working conditions for laborers.
Nike is in many ways a special case; more work must be done before we can understand how and when modern manufacturing techniques drive improved working conditions. For example, we found improved compliance in India, Malaysia, Thailand, and Vietnam, but no effects in China, the world’s largest exporter of apparel.
However, our research suggests that outsourcing production is not inexorably tied to poor workplace conditions. When facing tension between competitive and ethical sourcing, multinationals should consider a “high road” approach to the supply chain: investing in new managerial practices and worker skills.