When Labor Strikes Occur, Nobody Wins

With news swirling of the footwear factory strike in Vietnam over the past few weeks it begs the question: Who is ultimately hurt when workers go on strike? The answer: Everyone.

With news swirling of the footwear factory strike in Vietnam over the past few weeks it begs the question: Who is ultimately hurt when workers go on strike? The answer: Everyone.

Strikes are not something we hear a lot about these days. We occasionally read about “action” at a factory in Vietnam or Bangladesh on page 10 of the newspaper, but here in the US, they are much less frequent than they were even 25 years ago. What has caused this reduction? In the developed world, we have entered a new age of capital, an age where financial capital has supplanted human capital or labor. Visit any modern factory being developed in the US and you will find it’s one part human and ten parts machine. It was the exact opposite 50 years ago. This shift has dramatically reduced the collective power of the workers and their ability to strike. Union membership is telling. It has dropped from 20.1 percent of all employees in 1983 to 11.1 percent in 2014. The Bureau of Labor Statistics calls out there are 3.1 million fewer union members today than in 1983, even though 43 million more people are now employed.

We do have pockets where labor has managed to maintain its stronghold and can use collective power to strike for better wages. One such example are the longshoremen who, by using the leverage of control of an important global trade choke point at the US west coast ports, extracted better pay through a work slowdown for several months. This work action took a big bite out of the bottom line of a number of businesses and hurt many more workers than it helped. Truck drivers and ship workers waited for days at the ports to drop off or pick up goods, assembly lines slowed down, perishable foods become spoiled, and so on, but it could have been worse. In fact, research from global management consulting firm Kurt Salmon estimated that a complete shutdown of the ports would have caused shipping delays that cost retailers up to $3.8 billion this year.  According to The National Retail Federation and National Association of Manufacturers, a 10-day shutdown would have cost up to $2.1 billion per day on the overall economy as 50% of international imports come from the west coast, with 33% coming through LA and Long Beach alone.

Lower Cost Brings Higher Risk

The transition from a human capital-intensive economy to a financial capital focused economy is only in its infancy in the developing world, as cheap labor rates allow factories to remain worker-focused instead of capital/machine-focused. Why add robots when you can just add more cheap labor?  As we have seen across the developing world, however, this dependence on cheap human labor has led to a greater risk of strike or disruption. Every factory worker has a smart phone and Internet access. Workers can no longer be kept in the dark. Workers in Bangladesh can see what workers in Vietnam earn, and workers in Vietnam can see what workers in China earn. This level of transparency will accelerate wage rate growth in low wage countries as workers demand wages that workers in other countries have and speed the transition to capital driven economies. This transition will not be smooth or without pain. In addition to strikes, technology-enabled workers can document and expose on social media what they believe to be unfair or unsafe conditions in near real-time, creating massive disruption and reputational risk for brands. The irony is, the same labor cost arbitrage that is driving companies to build ever-more complicated supply chains that extend across the globe searching for cheap labor, is creating more risk of exposure to unsafe or unfair conditions – and greater risk of strike or disruption.

Betting on Technology & Transparency

It is no longer best practice or a sustainable model to operate sweatshops of the past. Social media – as well as pressure from the media and public – raises the transparency bar immediately. Customers have no patience for unfair labor treatment. Rana Plaza and other recent disasters have heightened the awareness of these issues. Today’s economy – in both the developed and developing world – is more about investment in technology, innovation and smart use of resources. Rather than operating low cost supply chains, those that operate best run supply chains focusing on innovation, cutting-edge resources and green practices will attract the attention of the big global buyers. Those will be the keys to winning. It is no longer about low cost labor or labor as a differentiator. It is about customer service, innovation and making a difference. More and more manufacturers are beginning to see suppliers as extensions of their brand. As this continues, higher wages and better factory conditions become higher priorities. This ultimately drives down the likelihood of labor strikes.  

Avoiding the Inevitable

Looking at the big picture, strikes and work stoppages cause more harm than help. Individual workers are unpaid. Businesses lose money. The people and companies that rely on those businesses suffer. Brands erode. We saw this in the recent US West Coast port strike. Unfortunately, they do happen.

No matter how closely a manufacturer monitors suppliers or implements rules there will always be issues. There will always be labor problems. Moreover, there will always be strikes. Transparency and visibility into the factories and facilities embedded in the supply chain are essential. Just as important is the ability to mitigate the risks of a work stoppage or disruption in the global supply chain.

Businesses must balance between low cost and high cost, between capital and labor, between low risk and high risk. No matter what you do, they cannot build a risk-free supply chain. There is simply no such thing. The best you can do, and should do, is to view suppliers as partners. Invest in the relationship. Be prepared and ready to act when issues strike. As we learned with the West Coast slow down, a small group of workers with the right amount of leverage can hit the bottom lines of a large number of businesses.