New Report Looks at Ethical Sourcing Risks in the Global Electronics Supply Chains
While the electronics industry is one of the largest industrial sectors in the global economy, it is also one of the most high-risk sectors for modern slavery. Producing phones, laptops and other electronics is a labour-intensive process, often reliant on low-skilled workers who earn low wages work and live in in sub-standard conditions for both mining raw materials and product manufacture.
Most electronics companies depend on third-party suppliers for the provision of components, raw materials and services that form key elements of their finished products. These suppliers in turn may outsource to others, leading to complex supply chains that can comprise multiple tiers, hundreds of supplier locations and thousands of individuals. The dozens of minerals used in the production of the products have been extracted from the ground in every continent except Antarctica. All of which explains the increased risk for the electronics industry and the need to ensure due diligence in the supply chain. The 2016 Global Slavery Index by the Walk Free Foundation estimates that there are 45.8 million people in modern slavery across the world with 20.9 million people trapped in forced labour, which includes those in electronics supply chains. Exploiters from hundreds of supplier locations, including electronics manufacturing factories, will coerce or deceive labourers for financial gain.
Forced Labour in Malaysia
Throughout the world, more than 160 countries are estimated to have modern slavery. While it’s crucial to be aware of the “extreme” and “high-risk” countries, these conditions can appear in any market.
One of the top high-risk countries in the global electronics industry is Malaysia. At the end of 2016, multiple Nepalese workers in both Samsung and Panasonic’s supply chain claimed they were exploited while working in Malaysia. They were allegedly deceived about the pay in multiple ways, including the fact that they were required to pay significant fees in order to simply secure their jobs. They also claimed that their passports were taken from them, forcing them to stay in Malaysia unless they paid a fine. In addition to these alleged deceptions, the working conditions were also poor and unethical.
Many of the Nepalese workers who made these allegations are financially trapped. It was said that the labour recruitment agency charged the labourers at least nine times the country’s recruitment fee limit.
One man said, “I was not given the job I was promised. I am doing very difficult work. I haven’t got the salary they said I would get.” And similarly, another said, “We know our earnings are below minimum wage, but what can we do about it? We feel terrible because we have a big loan to pay back. You have to work three years just to pay it off.”
Regarding the alleged poor working conditions, one labourer said, “You get only 45 minutes in a 12-hour shift to eat, and seven minutes every two hours to drink water.” Another stated that in a 12-hour shift, they were only allowed two bathroom breaks.
Many of these labourers were working for labour supply and subcontracting companies, not directly for Samsung or Panasonic. When it comes to allegations of forced labour using passport confiscation or other types of worker exploitation, however, even a remote connection via a subcontractor can damage a brand’s reputation with shareholders and consumers.
Expanding Conflict Minerals List to Include Cobalt
Since 2016, NGOs and other stakeholders have raised the question whether cobalt, a key mineral in the lithium batteries used in mobile phones, laptops and tablets, and which also largely mined in Democratic Republic of Congo (DRC), should be added to the list of conflict minerals. More than half of the world’s total supply of cobalt comes from the DRC. Cobalt is the most expensive raw material inside a lithium-ion battery. As part of an in-depth investigation on cobalt mining in the DRC in 2016, the Washington Post reported that worldwide, cobalt demand from the battery sector had tripled in the past five years and is projected to at least double again by 2020, according to Benchmark Mineral Intelligence. This increase has mostly been driven by electric vehicles.
Third Parties in Blacklisted Myanmar Mine
Also in 2016, Reuters reported on hundreds of companies, including Apple, working with blacklisted groups. The supply chains of these companies were purchasing tin ore from a mine controlled by the United Wa State Army (UWSA) near the Myanmar-Chinese border. The UWSA has been placed under US sanctions since 2003. Companies must monitor sanctions, watch lists and Specially Designated Nationals on an ongoing basis to mitigate both compliance and modern slavery risks.
A Guide to Ethical Sourcing
UN Guiding Principles outline 6 key steps to ensure ethical sourcing, three of which are to assess, monitor and act.
In order to assess the ethical risk, to mitigate the risk of modern slavery throughout supply chains and to protect your business from reputational risk, you must be proactive and conduct due diligence. This together with ongoing risk monitoring will enhance your company’s ability to respond to any instances and reduce the risk of forced labour occurring in your supply chain. Ongoing monitoring refreshes the due diligence process and will flag where deeper due diligence is required.
This all makes good business sense to reduce the risk to brand reputation; enhance consumer confidence and therefore retail sales in your product; and ultimately to fully comply with increasingly stringent regulations in this area.
Download the full white paper, Ethical Sourcing and Everyday Electronics, to learn about:
- The drivers and incentives for ethical sourcing labour and the risks involved, including ethical, reputational and financial risk
- The supply chain regulations introduced around the world that companies must comply by to avoid fines and liabilities
- The points in the electronics supply chain where ethical risks are prevalent and the countries with the highest risk
- The proper steps for ethical sourcing, enabling businesses to comply with regulations and protect labourers from modern slavery