In recent years, companies ranging from clothing manufacturer Patagonia to food giant Nestle have discovered forced labor in their supply chains.

When these situations become public, it's a PR disaster. Even when companies move quickly to fix the problem, a brand and public reputation can take a big hit.

Beyond that there's the moral dimension. No matter how strongly you believe in free markets, slavery is a horrible thing that no sane person wants to support.

Rather than react when labor abuses surface, it's smarter to take action today to ensure your supply chain is clean.

How Bad Is the Problem?

According to the book Bonded Labor, there were 20.5 million "bonded laborers" worldwide in 2011.

While that number seems small in comparison to the number of workers worldwide, it's three times larger than the number of manufacturing jobs lost in the United States over the past 12 years.

In addition, bonded labor is only one type of forced labor. Some countries arrest people (often ethnic minorities) on trumped up charges as necessary to fulfil work quotas, working them indefinitely.

Forced labor is a very ugly business. It often involves children or the mentally disabled, and they're frequently worked under conditions that rival the worst excesses of slavery in the U.S. before the civil war.

Forced labor continues to exist (and even thrive) because slavery is cheaper than paying wages to employees. Where it exists, slavery also reduces prevailing wages, making that region more globally competitive.

As The Atlantic recently pointed out, trade agreements like the Trans Pacific Partnership (TPP) may call for "all participants to end child labor and forced labor," such restrictions are toothless because they depend upon the U.S. government to enforce them.

Since you can't depend upon the government to protect you (no big surprise there, eh?), you need to be aware that if you're selling products manufactured in regions of the world that tolerate slavery, your company is definitely at risk.

What Can You Do?

Long term, entrepreneurs should push their representatives in Congress to amend trade agreements so that they can be enforced.

Short term, though, you should take these steps to ensure your company isn't supporting forced labor and removing a substantial risk to your brand:

  1. Document your supply chain. It's not enough to know who's supplying you with a product or component. You also need to know who's supplying them, ideally at least two levels up the chain.
  2. Assess the risk of forced labor. Forced labor is the most common in South Asia, China and Central Africa. The more deeply your company is deployed in those regions, the higher the likelihood of forced labor in your chain.
  3. Tighten up your contracts. If you deem there's risk, amend your contract with your suppliers to have large financial penalties if they fail to disclose suppliers or use suppliers who are discovered to be using forced labor.
  4. Audit your supply chain. If at all possible, make a personal inspection of your supply chain or hire a specialist to do so. It's much wiser to flush out the problems yourself than do damage control after it's public knowledge.
  5. Move your supply chain. If you discover (or even suspect) there's forced labor in your chain, your #1 priority is finding another source for your product. Yes, this might well increase your cost of goods. But it's worth it in the long run.

When companies actively seek out and eliminate forced labor in their supply chain, it makes slavery less profitable and therefore less likely to survive. So by protecting your own company you're actually making the world a better place.

Published on: Jan 26, 2016
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