Academic discussion regarding the business of forced labour generally focuses on the role and responsibility of large multinational corporations (MNCs). This makes sense insofar as MNCs are usually based in Western countries and wield vastly disproportionate power within global supply chains. However, the overwhelming focus on MNCs overshadows the aggregate importance of smaller subcontractors in shaping labour standards, particularly those that ‘need’ labour exploitation to remain profitable. For this reason, it is equally important for us to understand how the dynamics of outsourcing shape smaller businesses’ behaviour toward both their workers and other firms within the supply chain.

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In contrast to the academy, the media has made these smaller businesses the main culprits in its reporting on labour exploitation. When forced labour happens, it is typically said to occur in shadow or unregistered production centres several steps removed from MNCs and far below where any reasonable due diligence might reach.^[1] As if to confirm this, MNCs invariably express shock and disbelief when such reports break. Yet it is no accident that these practices occur in portions of the supply chain where MNCs have limited formal presence. And, far from being ‘hidden’ or impossible to map, a growing body of research now shows clear patterns regarding the types of businesses most likely to perpetrate forced labour, and the relative importance of forced labour to their business model depending on their sector, task, and location within MNC-dominated supply chains.^{[2, 3, 4, 5, 6]}

Outsourcing is the crucial dynamic that allows labour exploitation to take place without tarnishing the reputation or credibility of MNCs. It does this by fragmenting and deflecting responsibility for workers while making oversight and accountability for labour standards difficult. The situation becomes even more complicated, and thus opaque, when informal businesses or intermediaries such as labour brokers are present. These dynamics fuel forced labour because the complexity and lack of traceability introduced by outsourcing make it easy for businesses to get away with abuses, and because the legal distance that outsourcing introduces between lead firms and their suppliers shields the former from reputational damage and legal liability.

Outsourcing along product supply chains

From electronics to sporting goods, MNCs have outsourced lower-value added activities to third parties. Those suppliers often then further outsource parts of the production – say, the making of microchips, or intricate leatherwork on a football – to additional parties. Today, most product supply chains, meaning “the discrete stages that a product goes through to transform it from raw materials to a finished product”,^[7] involve several stages of production. The more layers of outsourcing there are, the harder it is to track the working conditions surrounding the creation of a product.

A burgeoning body of academic research reveals that forced labour often occurs in heavily outsourced portions of product supply chains. To take but one example, Nicola Phillips’ major study of forced labour in Brazil shows higher levels of subcontracting to be correlated with incidences of forced labour.^{[8, 9, 10]} It includes statistical analysis of data pertaining to “more than 21,000 workers released from conditions defined as ‘slave labour’ between 2003 and 2009”,^[11] as well as qualitative research conducted by Phillips and her team on value chains in Brazil. One key finding is that “the most severe forms of labour exploitation tend to occur in those parts of the production process that are associated with outsourcing practices”.^[12] Forced labour was found to be concentrated in “outsourced activities in such sectors as sugar cane, soybean, cotton or coal (and also in urban sectors such as garments), [which] are routinely associated with a higher incidence of ‘slave labour’”.^[13]

Evidence across a wide body of industries and locations confirms these links between outsourcing and forced labour. Recent studies of fishing,^{[14, 15]} garments,^[16] electronics,^[17] agriculture,^[18] and construction^[19] all point to the concentration of forced labour within subcontracted activities. Quantitative data, too, confirm that link. For instance, a 2013 study of more than 10 years of data by the Supplier Ethical Data Exchange (Sedex) found that risk – including the risk of forced labour – is highest beyond tier one; 18% more incidents of non-compliance with labour standards in the second tier, and 27% more non-compliance in the third tier. It also found that non-compliance became more critical and severe in the deeper tiers of the supply chain.^[20]

In short, data from a range of studies now show that outsourcing contributes significantly to forced labour. Because outsourcing has fragmented responsibility for workers across several firms, and distanced the consumer-facing brands from bad practices, it has created the conditions under which forced and exploitative labour can be used, without damaging brand reputation.

Outsourcing along labour supply chains

Outsourcing along the labour supply chain, a part of which is made of “often unregulated networks through which forced or trafficked workers may be recruited, transported, and supplied to business by third party agents”, is equally important for understanding forced labour in supply chains.^{[21, 22]} As mentioned earlier, firms have deepened their reliance on workers provided by labour market intermediaries (agencies, ‘gangmasters’ or ‘recruiters’) as a part of the larger project of globalisation. Recruitment agencies help companies avoid the costs of sustaining large, permanent workforces by providing a “parallel workforce” of “highly flexible, casualised workers to meet variable, just-in-time deadlines at low cost”.^{[23, 24, 25, 26, 27]}

Labour recruitment agencies also ‘outsource’ part of their work, so to speak, frequently working with other intermediaries who then work with others in turn. This can produce long labour supply chains that frequently involves exploitation well before workers actually enter the factory gates. Apple recently acknowledged this when noting that “some of our suppliers work with third-party labour agencies to source workers from other countries. These agencies, in turn, may work through multiple sub-agencies: in the hiring country, the workers’ home country, and in some cases, all the way back to the workers’ home village”.^[28] Recognising that these practices frequently create situations of “bonded servitude”, as the BBC put it, for factory workers long before they enter the workplace, Apple has outlawed this practice amongst its suppliers, mandating that they cover the cost of recruitment fees themselves.^[29]

A number of recent studies have found that forced labour is widespread amidst long and complex labour supply chains.^{[30, 31, 32, 33]} While not all labour market intermediaries are exploitative, some use forced labour as a revenue-generating and cost-saving strategy. A string of recent studies suggests that forced labour is especially prevalent among those providing labour at or around minimum wage.^{[34, 35, 36, 37]} Indicators of it include contract substitution, passport retention, restrictions on mobility, predatory recruitment fees, debt bondage, wage deductions and threats of penalty.

In all this, informality and flexibility are key. As Allain et al. argue: “although serious levels of exploitation can be found among a range of such intermediaries, forced labour typically emerges where an intermediary is operating at some level of informality, at least for some period of time. The more legitimate the intermediary, the less likelihood there is that they engage directly in forced labour”.^[38] A wealth of evidence pertaining to food and agricultural industries in many different regions of the world suggests a similar conclusion, namely that informal subcontracting among labour market intermediaries can introduce forced labour.^{[39, 40, 41, 42]}

Why is this so? In the first case, it is often significantly easier to exploit agency or broker-provided workers than a supplier’s own employees, as they are not on the books of the company who holds the supply contract, and therefore are often overlooked by labour standards, inspections and audits. Workers on the same job site may also have several different ‘employers’, making oversight and accountability for labour standards difficult. Furthermore, workers tend to be moved from worksite to worksite in relatively short periods of time, and therefore often evade any efforts that may be in place to ensure labour standards.

Second, long labour supply chains often exist in industries where price competition is fierce and the margins associated with some activities are very low, such as cleaning services, construction or agriculture. In these industries, where there is intense pressure to keep labour costs low, there is both pressure towards informality and to over-work and under-pay informal, contracted workers.

Distancing big brands from big human rights abuses

Outsourcing fragments responsibility for labour standards and makes maintaining oversight as well as determining accountability very difficult. It fuels the demand for forced labour by making it easier for small businesses to get away with exploitation while shielding bigger businesses further up the supply chain from reputational damage or legal liability. This, in turn, makes it harder for workers, NGOs, unions, lawyers and consumers to hold consumer-facing businesses to account. None of this is accidental. MNCs and politically-aligned governments have been instrumental in the neoliberal shifts that have made outsourcing possible and that have limited the liability of MNCs operating from their jurisdictions. They have pushed for labour flexibility and driven down the prices paid to top-tier suppliers, taking an ever-greater share of value in the process. But the implications of their business practices for forced labour go well beyond outsourcing and profit hoarding, and it is to a number of especially nefarious others that we now turn.

Next chapter: Demand 3 of 4: Irresponsible sourcing practices

1. To take just one recent example, The Guardian’s 2014 investigation into forced labour in the Thai seafood industry, which supplied global retailers like Walmart, Costco, and Tesco, reported that prawn supplier CP Foods was sourcing from “ghost ships” that “own, operate or buy from fishing boats manned with slaves”. See: H. Hodal et al. (2014) ‘Revealed: Asian slave labour producing prawns for supermarkets in US, UK’, The Guardian. ↩︎
2. A. Crane & G. LeBaron (2017) ‘Overseas anti-slavery initiatives flourish, but domestic governance gaps persist’, Beyond Trafficking and Slavery. ↩︎
3. A. Crane & G. LeBaron (2017) ‘Why businesses fail to detect modern slavery at work’, The Conversation. ↩︎
4. A. Crane & G. LeBaron (2013) ‘Hidden in plain sight: slavery on a high street near you’, The Guardian. ↩︎
5. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’, Joseph Rowntree Foundation. ↩︎
6. A. Crane (2012) ‘Modern Slavery As A Management Practice: Exploring the Conditions and Capabilities for Human Exploitation’, Academy of Management Review, 31(1), 49-69. ↩︎
7. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’, 39. ↩︎
8. Nicola Phillips (2011) ‘Unfree labour and adverse incorporation in global production networks: comparative perspectives on Brazil and India’, Working Paper No. 176, Chronic Poverty Research Centre. ↩︎
9. N. Phillips & L. Sakamoto (2012) ‘Global Production Networks, Chronic Poverty and ‘Slave Labour’ in Brazil’, Studies in Comparative International Development, 47(3), 280. ↩︎
10. N. Phillips (2013) ‘Adverse Incorporation and Unfree Labour in the Global Economy: Comparative Perspectives from Brazil and India’, Economy and Society, 42(2), 171-196. ↩︎
11. N. Phillips & L. Sakamoto (2012) ‘Global Production Networks, Chronic Poverty and ‘Slave Labour’ in Brazil’, 280. ↩︎
12. N. Phillips (2013) ‘Adverse Incorporation and Unfree Labour in the Global Economy: Comparative Perspectives from Brazil and India’, 183. ↩︎
13. Ibid. ↩︎
14. H. Hodal et al. (2014) ‘Revealed: Asian slave labour producing prawns for supermarkets in US, UK’. ↩︎
15. International Labour Organization (2013) ‘Caught at Sea: Forced Labour and Trafficking in Fisheries’, Geneva: ILO. ↩︎
16. S. Labowitz & D. Baumann-Pauly (2014) ‘Business as Usual is Not an Option: Supply Chains and Sourcing after Rana Plaza’, NYU Stern, Center for Business and Human Rights. ↩︎
17. Verité (2014) ‘Forced Labor In The Production Of Electronic Goods In Malaysia: A Comprehensive Study of Scope and Characteristics’. ↩︎
18. S. Scott et al. (2012) ‘Experiences Of Forced Labour In The UK Food Industry’ Joseph Rowntree Foundation. ↩︎
19. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’. ↩︎
20. Sedex (2013) ‘Going Deep: The case for multi-tier transparency’. ↩︎
21. A. Crane & G. LeBaron (2017) ‘Why businesses fail to detect modern slavery at work’. ↩︎
22. See also: J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’, 42. ↩︎
23. S. Barrientos (2008) “Contract labour: The 'Achilles Heel' of corporate codes in commercial value chains”, Development and Change, 39(6), 977-990. ↩︎
24. J. Peck (2010) Constructions of Neoliberal Reason, Oxford: Oxford University Press. ↩︎
25. J. Fudge & K. Strauss (eds) (2013) Temporary work, agencies and unfree labour: insecurity in the new world of work, London: Routledge. ↩︎
26. S. Barrientos (2013) “‘Labour Chains’: Analysing the Role of Labour Contractors in Global Production Networks”, The Journal of Development Studies, 49(8), 1058-1071. ↩︎
27. J. Fudge & K. Strauss (eds) (2013) Temporary work, agencies and unfree labour: insecurity in the new world of work. ↩︎
28. Apple (2012) ‘Apple Supplier Responsibility: 2012 Progress Report’, 9. ↩︎
29. BBC News (2015) ‘Apple bans 'bonded servitude' for factory workers’. ↩︎
30. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’. ↩︎
31. J. Fudge & K. Strauss (eds) (2013) Temporary work, agencies and unfree labour: insecurity in the new world of work. ↩︎
32. S. Barrientos (2013) “‘Labour Chains’: Analysing the Role of Labour Contractors in Global Production Networks”. ↩︎
33. H. Harroff-Tavel & A. Nasri (2013) ‘Tricked and trapped. Human trafficking in the Middle East’, Geneva: ILO. ↩︎
34. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’. ↩︎
35. K. Strauss (2012) ‘Coerced, forced and unfree labour: geographies of exploitation in contemporary labour markets’, Geography Compass, 6(3), 137-148. ↩︎
36. J. Fudge & K. Strauss (eds) (2013) Temporary work, agencies and unfree labour: insecurity in the new world of work. ↩︎
37. L. Waite et al. (2013) ‘Precarious lives: Experiences of forced labour among refugees and asylum seekers in England’, Research Report, University of Leeds. ↩︎
38. J. Allain et al. (2013) ‘Forced labour’s business models and supply chains’, 35. ↩︎
39. S. Scott et al. (2012) ‘Experiences Of Forced Labour In The UK Food Industry’. ↩︎
40. N. Phillips & L. Sakamoto (2012) ‘Global Production Networks, Chronic Poverty and ‘Slave Labour’ in Brazil’. ↩︎
41. S. McGrath (2013) ‘Many Chains to Break: The Multi-dimensional Concept of Slave Labour in Brazil’, Antipode, 45, 1005-1028. ↩︎
42. K. Strauss (2012) ‘Coerced, forced and unfree labour: geographies of exploitation in contemporary labour markets’. ↩︎