Supply Chain
KPMG Says Investing in Working Conditions in China Good For Business

Manufacturers that invest in working conditions can improve their profit margins and increase their competitive advantage, according to recent research by KPMG.

Business Case Analysis for Responsible Electronics Manufacturing was commissioned as part of the IDH Electronics program, which focuses on establishing worker-management dialogue as a means to improving working conditions and facilitating operational efficiency.

KPMG analyzed data gathered from over 70 factories, interviews with factory management teams and 99 published academic studies on the subject of working conditions. KPMG then built a modeling tool to assess the payback and margin impact resulting from a range of examples of investments in more responsible electronics manufacturing practices.

The report found investing in working conditions can provide a return on investment in as little as four months for electronics manufacturers in China.

“While things have certainly improved over time, we have recently been confronted with cases where working conditions do not meet the internationally accepted minimum,” said Ted van der Put, IDH Director. “This study shows that efforts like creating a better working environment or investing in training can result in an improvement in manufacturers’ bottom line as worker productivity goes up and worker turnover goes down.”

KPMG says the report intends to kick-start a constructive conversation between manufacturers and the large electronics brands that buy from them.

“Our report shows examples of business cases for investing in working conditions, with the payback time ranging from 4 to 20 months,” said Jerwin Tholen of KPMG in the Netherlands and co-author of the report. “At the higher end of this range, manufacturers may be reluctant to invest if they don’t have the commitment from brands to co-invest or at least continue working with them for an extended duration.”

While the effects of investing in working conditions are strongly dependent on the context in which these take place, such as the country and industry sector, the analysis suggests that workers who are more engaged and enjoy better working conditions are more likely to be more productive and stay longer, which helps to pay for those investments.

In China, where labor supply is becoming increasingly constrained and wages are rising fast, reducing worker turnover is a key competitive advantage for manufacturers. Improved working conditions can pave the way to a more sophisticated level of manufacturing, in which the focus shifts from costs to skills and adding value, KPMG says.

Consumers also are becoming more aware of where their products are made, especially in the aftermath of the recent devastating factory collapse in Bangladesh, which killed more than 1,000 people. This ‘conscious consumerism’ favors brands and products that are more transparent by revealing supply chain data, where products are made and the conditions inside the places they are made.