Cheap Labor Came at a high priCe in 2014

asiainspeCtion Q1 barometer

hong Kong, january 14, 2015

asiainspeCtion (AI)

a Leading gLobaL QuaLity ControL and CompLianCe serviCe provider that partners with brands, retaiLers and importers around the worLd

to seCure, manage and optimize their suppLy Chain,

today announces its 2015 Q1 Barometer, a quarterly synopsis on outsourced manufacturing and the quality control services industry.

Looking back at 2014, AI’s data reveals some interesting trends in manufacturing output quality in Asia

(measured by the Acceptable Quality Level results of onsite inspections) for four major sourcing regions in Asia.

Notably, AQL inspection results in Bangladesh have gradually improved throughout the year,

from an initial high of over 50% Beyond AQL inspections

to just above 25% in December.

2014 QuaLity trends:

aLL is not made eQuaL

It is likely that this is due to the

enormous pressure being appLied on brands to demonstrate ethically compliant supply chains in Bangladesh

following incidents such as Rana Plaza in 2013, causing buyers to more carefully select suppliers and push them to improve standards.

On the food front, data from AsiaFoodInspection, AI’s food inspection arm, shows that

48.1% of inspeCtions in China faiLed in 2014.

China is struggling with low consumer confidence in food safetyas the country was hit with multiple scandals.

Most notably, the closure of Shanghai Husi Food Co. by authorities after it was discovered to be

suppLying expired meat to gLobaL brands such as

and

a year ofLost ChiLdhoods

AI’s figures for 2014 shows that

5.6% of ethiCaL audits in asia faiLed for ChiLd Labor,a slight increase over the Q2 figure of 5.5%.

The US Dept. of Labor released a new report in October stating that

there are 168 miLLion ChiLd Laborers worLdwide,and that over 85 million are engaged in hazardous work.1

Actual children laborers discovered by AI in 2014

These aren’t just numbers on a page, AI auditors continue to discover child laborers in factories.

there’s a disbeLief that ChiLd Labor Can stiLL exist in 2015,

but this is reaL.

Tackling the issue is no easy task for brands and retailers in supply chains that are increasingly complex and fragmented,

but aCtion Can be taKen to safeguard these ChiLdren’s ChiLdhoods

““

said sebastien breteau, AsiaInspection CEO.

The annual global slavery index by the WFF reported

35 miLLion peopLe in modern sLavery worLdwide in 2014, with India and China topping the list.2

Further, Thailand’s billion dollar fishing industry is struggling after the International Labor Organisation (ILO) announced that

nearLy 17% of worKers in the industry have experienCed forCed Labor.3

no heaLth nor safety for worKers

The past year also saw unrest regarding working conditions in Asia. AI’s 2014 figures show that Health & Safety is consistently

the main reason for failure of ethical audits,

Bangladesh scored 4.2 China scored 4.4

with India scoring the worst, at an average of 3.8/10.

The Accord on Fire and Building Safety in Bangladesh identified

more than 80,000 safety issues in 1,106 factories inspected.4

The ILO also published a report stating that Vietnamese factories still had much work to do to meet international standards for fire safety.5

Working Hours and Compensation

are the second most common cause of failure in AI’s ethical audits.

Here again, India scores an average of 3.9/10, worse than China at 5.3 and Bangladesh at 6.2.

However, conflict remains and Cambodia’s overall ethical audit score for 2014 was just 5.2/10.

Unions claim that

1,200 worKers were fired without severanCe after they went on strike over working conditions in December.7

The Cambodian Labor Advisory Committee agreed to increase the minimum wage for garment workers by 28%

to US$128 per month, with the new wage taking effect on January 1, 2015.6

what to expeCt in 2015 gLobaL sourCing

While 2014 did not have any major disasters involving the loss of human life on the scale of Rana Plaza,

it is evident that despite the work done to raise awareness of ethical compliance,

gLobaL suppLy Chains stiLL suffer from widespread labor abuses.

were found to have one or more Major Non-Compliance for Health & Safety in 2014.

AI’s data shows that

of factories audited by AI in India

of factories audited by AI in Bangladesh

50% 43%

transparenCy and anaLytiCs wiLL be Key topiCs in 2015 .

Sedex Global published a briefing in September highlighting the risks of corruption and how it exacerbates supply chains issues, and methods to combat the risk.8

Key among those are audit programsmated to business intelligence systems such as those developed by AI,

which allow real-time oversight of suppliers.

The Deloitte Global CPO Survey 2014 reveals that

these systems wiLL be an essentiaL tooL in 2015 for understanding supply chains.

of CPO’s are investingin supplier portals

list quality of data as a barrier to the use of effective analytics

cite lack of integration.9

65% 67%

40%

Geographically,

changes in global manufacturing cost-competitiveness will likely

Cause buyers to taKe advantage of Lower Costs and proximity to consumer markets in countries such as Mexico.

China’s estimated cost advantage over the US is now less than 5% as the country transitions to increasingly value-added production

with higher labor costs.10

Established and Emerging Sourcing Regions

This also allows developing Asian countries such as India and Indonesia, whose costs have risen at a comparatively lower rate,

to capture manufacturing volume in apparel and other goods as buyers develop China +1 sourcing strategies.

year in review figuresKey Kpi’s

bangladesh China india vietnam

* Acceptable Quality Level - Source : AsiaInspection data

january 2

014

february 2

014

march 2014

april 2014

may 2014

june 2014

july 2014

august 2014

september 2014

october 2014

november 2014

december 2014

60

50

40

30

20

10

0

2014 Beyond AQL* Percentages

bangladesh China india vietnam

Source : AsiaInspection data

january 2

014

february 2

014

march 2014

april 2014

may 2014

june 2014

july 2014

august 2014

september 2014

october 2014

november 2014

december 2014

10

9

8

7

6

5

4

3

2

1

0

2014 Average Audit Scores

bangladesh China india vietnam

Source : AsiaInspection data

january 2

014

february 2

014

march 2014

april 2014

may 2014

june 2014

july 2014

august 2014

september 2014

october 2014

november 2014

december 2014

250

200

150

100

50

0

-50

-100

2014 Inspection Growth Percentages

asiainspeCtion is a Leading gLobaL QuaLity ControL and CompLianCe serviCe provider

that partners with international brands, retailers and importersto secure and manage their global supply chain.

ABOUT ASIAINSPeCTIONyour e yes in the faCtory! ™

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W W W . A S I A I N S P E C T I O N . C O M

press ContaCt Michael Mesarch • Tel: (+86) 755 2223 9888

Email: press@asiainspection.com

1/ US Dept. of Labor, Bureau of International Labor Affairs. 2013 Findings on the Worst Forms of Child Labor. October 7th 2014. http://www.dol.gov/ilab/reports/child-labor/findings/2013tda/2013tda.pdf

2/ Walk Free Foundation. 2014 Global Slavery Index. November 17th 2014. http://www.globalslaveryindex.org/findings/

3/ International Labour Organisation. Employment Practices and Working Conditions in Thailand’s Fishing Sector. Accessed December 17th 2014. http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_220596.pdf

4/ Accord on Fire and Building Safety in Bangladesh. Accord Reached Important Milestone by Completing Initial Inspections of Factories in Bangladesh. October 14th 2014. http://bangladeshaccord.org/2014/10/accord-reaches-important-milestone-completing-initial-inspections-factories-bangladesh/

5/ International Labour Organisation. Despite Some Progress, Garment Factories Need to Strengthen Fire Safety. Dec. 11th 2014. http://www.ilo.org/hanoi/Informationresources/Publicinformation/Pressreleases/WCMS_327036/lang--en/index.htm

6/ Associated Press. Cambodia Increases Garment Industry Minimum Wage. November 12th 2014. http://bigstory.ap.org/article/81342bb04fe7451da943cc0da4c5575f/cambodia-increases-garment-industry-minimum-wage

7/ Cambodia Daily. Unions Claim Garment Factory Fired 1,200 Workers for Strike. December 10th 2014. https://www.cambodiadaily.com/news/unions-claim-garment-factory-fired-1200-workers-for-strike-73934/

8/ Sedex. New Sedex Briefing Highlights Need for Global Response to Corruption. December 11th 2014. http://www.sedexglobal.com/new-sedex-briefing-highlights-need-for-global-response-to-corruption/

9/ Deloitte. The Deloitte Global CPO Survey 2014. December 2014. http://www2.deloitte.com/uk/en/pages/operations/articles/cpo-survey.html

10/ Boston Consulting Group. The Shifting Economics of Global Manufacturing. August 19th 2014. https://www.bcgperspectives.com/content/articles/lean_manufacturing_globalization_shifting_economics_global_manufacturing/

footnotes