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Coping with Global Regulatory and Political Risk

Posted By Jeff Moad, August 29, 2011 at 11:25 AM, in Category: Global Value Networks

As manufacturing becomes increasingly global, it's critical that executives understand the regulatory and political environments in which they and their partners operate overseas. Failure to do so can undermine brands and curtail production.

A couple of examples of these risks emerged last week. Swedish retailing giant H&M last week was hit with a barrage of bad press when workers at a plant run by one of its apparel contract manufacturers in Cambodia began fainting. Reasons for the fainting spells--which affected 300 workers last Tuesday and Thursday--weren't' immediately clear. But news reports noted that apparel workers and unions in Cambodia have been striking over the past year demanding that minimum wages be raised from $61 per month to $93 per month. Some union officials blamed employer forced-overtime practices for the fainting spells, but it's not out of the question that contract negotiations are playing a role in the incidents.

Meanwhile, H&M and its Cambodian contractor are taking the heat and the story is getting picked up by Western media. H&M can only say it is preparing an "in-depth investigation."

At the same time last week, iconic musical instrument manufacturer Gibson Guitar complained that it was struggling to sustain operations after US Department of Justice officials reportedly raided the company's plant in Nashville and Memphis, confiscating exotic woods that reportedly had been imported in a way that violated Indian laws. Gibson's CEO Henry Juszkiewicz issued a press release vowing to fight the confiscation and suggesting that the company was being persecuted by the DOJ. Gibson, however, has reportedly been investigated for similar practices in the past.

After-the-fact promises to investigate high-profile apparent manufacturing safety problems and complaints of regulatory persecution may make for entertaining journalism. But they're not very effective in insulating manufacturers from brand image damage when they run afoul of regulations or political realities in offshore locations where they or their suppliers operate. In the minds of some consumers, H&M and Gibson will now be branded as violators of worker rights and environmental laws.

It's much better to understand all of the rules of engagement in the countries which which you or partners operate and to keep on top of what's going on in plants and supply networks for which you, ultimately, are responsible.

How do you keep up with regulations and risks in all of the countries in which you and your key suppliers operate? Do you take these risks into account when where in the world and with whom to do business?

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit


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