Global Supply Chain Ethics a Concern Heading into the Holiday Shopping Season

Focus remains on the ongoing U.S.-China trade dispute, while a new survey of global brands by AsiaInspection indicates ethics, sustainability and quality are increasingly at risk.


As Asia’s manufacturing hubs ramp up production for the upcoming holiday season amidst the ongoing trade war, a new survey of global brands by AsiaInspection (AI), a leading quality control and compliance provider, found that ethics, sustainability and quality are increasingly at risk.

The survey entitled, “Are Supply Chain Ethics Becoming a Casualty of the Trade Wars,” is AI’s latest quarterly synopsis of quality and compliance in global supply chains. AI’s Q4 barometer paints a picture of increasingly diversified global sourcing and worrying trends for sustainability. In fact, the survey found only 27 percent of factories were ranked as “green” or fully compliant and safe structurally. What’s more concerning is that 21 percent of inspected products in Q3 2018 were found to be outside of quality specifications—a disturbing trend as holiday orders and shipments hit the shelves next month.

Ethical Compliance

On-site structural audits by AI civil engineers produced data that indicates improvements in factory safety are slow moving. During the first three quarters of 2018, the survey reports 3.5 percent of factories were determined to be in need of immediate improvement and posing imminent risk to worker safety, while the number of factories to receive a barely-passing grade is steadily increasing. 

“The overall trend of 2018 so far compared to 2017 shows a consistent increase in the share of ‘Amber’ factories (that show no immediate risk but need improvement in the medium term), which may indicate that brands and manufacturers are gradually growing complacent, reluctant to improve further after meeting ‘good enough’ safety requirements,” authors of the AI survey note. 

Tightening ethical standards among today’s consumers, and thus top U.S. companies, also point to critical concerns in regards to working hours, wages and waste management. 

Global Sourcing Trends 

Despite the ongoing tariff escalation between the United States and China, AI’s report suggests the country remains confident it will maintain its status as the top sourcing destination. China’s demand for inspections and audits grew by 7.5 percent in 2018 YTD, and the findings of the AI mid-year survey indicate that China remains among the top 3 sourcing countries for over 90 percent of respondents worldwide, while the dependence of North American and European buyers on China has actually increased in 2018 compared to the previous year. 

At a micro level, the report notes Chinese businesses appear somewhat unfazed by the trade war. Among the survey respondents, only 36 percent of Chinese companies said they felt affected by new U.S.-China tariffs, compared to almost 60 percent in the United States. 

Despite China’s confidence, however, geographical diversification of sourcing is underway, driven, AI says, by the need for cost optimization that predates the current tariff battles. Up to three-quarters of businesses surveyed said they were already looking for suppliers in new countries prior to the tariffs, or had plans to do so in 2018. In Southeast Asia, the popularity of Vietnam and Cambodia is confirmed by the double-digit growth observed by AI in these countries in Q3 2018. Meanwhile, a notable portion of companies working in the cost-sensitive textile sector have mentioned plans to expand their sourcing to other Asian manufacturing hubs, with AI Q3 2018 figures showing notable growth in Bangladesh and Turkey, where textile inspection and audit volumes expanded by 22 percent and 45 percent YTD, respectively. 

Product Quality 

Data gathered during on-site product inspections by AI indicates that despite a brief rebound earlier this year, made-in-China manufacturing quality continues to slip. By contrast, manufacturers in the rest of Asia have made strides to improve product quality, making themselves more competitive for businesses that seek to diversify their sourcing. Most notably, both India and Bangladesh, historically poor performers on quality, have successfully kept inspection failure rates below 30 percent through the first three quarters of 2018. 

Despite this trend, Chinese suppliers to the United States in the toy industry appear to be the exception. AI’s reports notes that failure rates of toys and juvenile products due to excess lead content and presence of banned phthalates are lower than the cross-industry averages (at 2.5 percent and 7 percent, respectively), and consistently decreasing long term.