Forced labour is illegal in most jurisdictions and expressly prohibited in most multinational corporation (MNC) contracts and supplier codes of conduct. It therefore carries risks for businesses who use it. For MNCs such risks are generally confined to reputational damage, but for supplier firms the consequences could include the loss of MNC contracts, the imposition of large fines, or even criminal prosecution. So, when is forced labour ‘worth’ the risk?

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Business Professor Andrew Crane has argued that a confluence of business conditions and capabilities must come together to make forced labour a viable management practice.^[1] A growing body of evidence shows that one key factor shaping these conditions and capabilities, and in doing so triggering the business demand for labour exploitation, is irresponsible sourcing practices on the part of MNCs. Such practices include short-term contracts, extremely tight production windows, chronically delayed payments, and unfair or unreasonable payment terms. Because buyers wield disproportionate purchasing power and influence, suppliers often enter into commercial agreements that are difficult if not impossible to meet without imposing harsh or unfair conditions on workers. Such conditions can include excessive and compulsory overtime, illegal wage deductions or delayed payment, punitively high quotas, physical abuse or discipline, constraints on freedom of movement, repression of freedom of association, sexual violence, and harassment and intimidation.

Sometimes suppliers resort directly to forced labour to meet their obligations.^{[2, 3, 4, 5, 6, 7]} Others open the door to forced labour later on by engaging in risky practices like unauthorised product and labour subcontracting.^[8] But regardless of whether the consequences are immediate or time-delayed, the forces unleashed by irresponsible sourcing practices almost invariably trigger a demand for labour exploitation somewhere along the supply chain.

Time pressures and unstable sourcing

Global production is widely reported to be speeding up. Companies are always striving to offer customers something ‘new’, and a consequence of this has been ever-smaller orders with ever-shorter turnaround times.^[9] These time pressures fuel labour exploitation across several sectors, from the production of high-end consumer electronics and home goods to leather and footwear,^{[10, 11, 12, 13]} but nowhere is the issue thrown into such stark relief as in ‘fast fashion’. Where it once took six months for runway styles to hit high street stores and catalogues were designed around the four seasons, we now see retailers with “up to 52 season cycles, with a new product line every week”.^[14]

The enormous strain this places on suppliers and workers is further exacerbated by price and quality pressures as well as smaller order sizes. A recent study of the garment sector for the United Nations Industrial Development Organisation (UNIDO) finds that, “without exception, clothing and textile researchers have been noting how [lead firms] are insisting on lower prices, better quality, shorter lead times, smaller minimum quantities and supplier acceptance of as much risk as possible”.^[15] Forced labour in garment production is not new, and has been well-documented among the unregistered factories, home workers, and contract and agency workers working in many different national contexts.^{[16, 17, 18, 19]} Yet as garment production has sped up we have seen new challenges emerge that have further increased its likelihood.

To meet their obligations suppliers frequently pressure workers to work overly long or consecutive shifts for below-minimum wages while fulfilling extremely high quotas.^{[20, 21, 22, 23, 24]} They may also seek out workforces (e.g. children, refugees, irregular migrants) whose desperation, vulnerability and restricted mobility leave them with little choice but to accept illegal working conditions.^{[25, 26, 27, 28, 29]} As we saw in chapter 5, such populations also find it difficult to resist or escape psychological or physical coercion.^[30] Time pressures on tier-one suppliers, furthermore, are generally passed down to the sub-tiers of the supply chain.

As just one example, the garment suppliers in India’s Tamil Nadu region are so affected by this dynamic that the Sumangali system has now emerged, in which young women “live in company-controlled hostels with no freedom of movement so that they will be available to work on call, won’t seek work in other factories or mills and will be deterred from joining a union”.^[31] This need for instantaneous yet cheap labour power is a direct result of decreasing production windows, and it fuels the business demand for forced labour.

Research also suggests that the time-sensitive nature of some products, such as perishable foods or seasonable goods, leads to predictable yet temporary concentrations of forced labour.^{[32, 33, 34]} Products like strawberries or tomatoes have very short harvest windows, and at picking time suppliers need a large number of workers but only for a short period. Artificial Christmas wreaths or Valentine’s Day hearts are produced under similar constraints, and to cope factories frequently must expand their core workforces while keeping costs as low as possible in the process.

As we saw in the last chapter, this need is often met through either labour subcontracting^{[35, 36]} or subcontracting work to smaller, less formalised production sites. These include unregistered factories, where exploitative labour practices are a core part of the business model,^[37] as well as informal and unregulated workers including home workers.^{[38, 39]}

Instability within MNC sourcing practices adds to the pressure on supplier firms to engage in forced labour. That instability takes many forms, including late-notice alteration to the size, content or timing of orders. A recent study of the ‘root causes’ of excessive overtime in Turkey’s garment industry, for example, found key issues to be delays in the supply chain outside the vendor’s control, the limited ability of suppliers to adapt to fluctuating orders, sudden and large orders, the unpredictability of future orders, last minute style changes and short lead times.^[40]

Falling prices

Changing price points are also significant to the business demand for forced labour. According to national consumer price indexes, the prices of key household goods like clothing and food have fallen dramatically since the 1980s in many countries.^{[41, 42, 43]} Pressure on prices stems, in part, from MNCs competing to sell goods to cash-strapped Western consumers, whose standard of living been hit hard by neoliberal restructuring. Indeed, The Guardian recently noted that “Britain is experiencing a rapid decline in living standards with the biggest squeeze in workers’ pay since 2014”.^[44] Downward pressure on prices puts producers at a disadvantage because buyers are not willing to pay as much for goods. And at the same time, many producers face growing business costs because of everything from regulatory or legislative changes to increasing commodity prices.^[45] This dynamic is often referred to by economists as the ‘price-cost squeeze’.

MNCs use their disproportionate commercial power to maintain their own profit margins even as prices fall. They do this by passing costs onto already squeezed suppliers. These relentless and ever-worsening pressures around price and cost are a key driver of forced labour in the global economy. Mark Anner, a professor of labour and employment relations at Penn State University, once illustrated this point in an interview using an anecdote from a factory he visited in El Salvador:

[The owner] explained that the statutory minimum wage had just gone up by 10%. So, I asked her, ‘What did you do about it’? And she said she called the lead firm that was providing her with her orders…and she told them that she was going have to adjust her prices to reflect the fact that she now had to pay a higher statutory minimum wage. This was important because we know that about 80% of her overheads were labour costs…The lead firm paused for a moment and said, ‘No, you don’t understand, that is the price point. There is only one question and that question is, “Can you make this order at this price point?” Because if you can’t, with one or two phone calls we can move this to Haiti’. ‘So, what happened then?’, I asked her. She said she got on the megaphone and basically told the workers that they had to work 10% faster.^[46]

The naked market power at work here is not uncommon in global supply chains. Although the lead firm was not responsible in this instance for altering the price point, it used its power to force its supplier to absorb the added cost of the recent shift in production costs. When shocks like this happen, suppliers use several cost-minimisation and revenue-generating strategies to mitigate the effects, including forced labour. In this light, it is unsurprising that global data on forced labour indicates that it is most prevalent in the agricultural sector,^[47] where producers have been badly hit by rising costs of inputs (e.g. seeds and energy) and decreasing prices for their final goods (e.g. wool, sugar, beef, wheat).

MNCs further exercise their power by delaying payments to suppliers. Suppliers’ tight margins make it difficult to pay production costs up front and wait long periods to recoup those costs, yet this is exactly what retail buyers frequently compel them to do. In the UK, Tesco has become infamous among farmers for this reason.^{[48, 49]} Despite the colossal profits Tesco makes, farmers report the company disputes agreed payment plans, imposes penalties for crop deficiencies, and makes un-scheduled deductions for in-store promotions. Where farmers contest these changes, further delays to payments can result, with the consequence that farmers are unable to cover their own overheads and may be forced into debt or to transfer their costs onto the labourers working for them.

In short, the unwillingness of MNCs to budge on their own profits – even in the face of rising production costs and falling prices – is a key driver of the business demand for labour exploitation and forced labour.

Conclusion

Today, the risks of forced labour are well documented. High-tech programmes also exist to help companies measure and mitigate risks, and to prevent and address forced labour in their supply chains. Yet, they continue to use irresponsible sourcing practices that are established triggers of the business demand for forced labour.

As we will see in the next chapter, MNCs are investing considerable resources in ethical certification schemes and social auditing programmes to combat forced labour and trafficking in their supply chains. Yet such schemes generally fail to address the root causes of problems, such as time and cost pressures, and some place even greater burden and punitive pressure on suppliers which can push problems deeper into the shadows of supply chains.

Next chapter: Demand 4 of 4: Governance gaps

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