Toy manufacturing in China

A follow-up of social criteria for Gothenburg Municipality

A report by Swedwatch written by Kristina Areskog Bjurling,

commissioned by The Procurement Company Gothenburg.

December 2009.

Content

1. The follow up of Gothenburg’s social requirements 3

2. The contracting companies (and their suppliers in China) 7

3. Conclusion 24

4. Recommendations 26

5. Appendix I. The legal framework 30

6. Appendix II. Comment from Lekolar 34

1. The follow up of social criteria for Gothenburg Municipality

The Procurement Company Gothenburg is a wholly-owned municipal enterprise. The main task of the

company is to coordinate the procurement of goods and services that are used by several municipal

administrations and companies within the City of Gothenburg.1 The Procurement Company has a

two-year contract from 2008 – 2010 on products such as toys and hobby articles for the municipality

of Gothenburg and eight surrounding municipalities. The total value of the contract is SEK 15 million.

The products are used at kindergartens, pre-schools etc.

1.2 Introduction Gothenburg Municipality has decided to increase the total percentage of ethical purchasing within all

the activity spheres of the municipality. For the current purchase concerning toys, the focus of

SwedWatch’s investigation, the following social requirements were stated in the tender: the

companies submitting a tender were required to have a Code of Conduct which followed ILO core

conventions, the UN Convention on the Rights of the Child and the national legislation in the

producing country.2

The content of the Code of Conduct should prescribe the working conditions under which the toys

were to be produced. The stated requirements should also apply to possible subcontractors. The

contracting parties were requested by the Procurement Company to present that the Code of

Conduct was fulfilled no later than six months after the contract came into force. The Procurement

Company Gothenburg stated in the tender that Membership of the International Council of Toy

industries, ICTI, working in line with the Business Social Compliance Initiative, BSCI or SA8000

certificate is regarded as verifying this. The supplier might also present an external verification by an

auditor or an internal CSR strategy which should be monitored by personnel with documented

experience.

The three companies who won the final bid on 11 September 2008 assured the Procurement

Company that their production was in line with the social requirements. Lekolar AB and ABA-skol

referred to their membership of ICTI, and Corporate Express Staples (CE) stated that they imposed

demands on their suppliers.3 The Procurement Company Gothenburg also said that it may follow up

the social requirements by doing social audits on production. All the winning companies had to

participate in a seminar arranged by the Procurement Company Gothenburg in February 2009 to

learn more about the social requirements.

1 http://www.upphandlingsab.goteborg.se/

2 The Procurement Company Gothenburg also accepted the contracting parties that reported being members

of business associations such as the International Council of Toy Industries, ICTI, which has a Code of Business practice. This was done after consulting Fair Trade Center, spring 2008. 3 SwedWatch has read the evaluation the Procurement Company Gothenburg made before taking the decision

as to who would win the contract.

In May 2009 SwedWatch was assigned by the Procurement Company Gothenburg to conduct a

follow up to check that the prescribed social requirements had been met in the production of toys

and hobby articles produced for the municipality.

Methodology

During the spring of 2009, the Procurement Company Gothenburg first asked their contracting

parties (Lekolar, Corporate Express Staples and ABA-skol) to give SwedWatch the addresses of

manufacturing sites of products within the contract. In many cases, it turned out to be very difficult

for the companies to get hold of the addresses; instead SwedWatch received addresses of agents in

Hong Kong or Taiwan. In the end around 20 production addresses were collected, mainly

concentrated in the Guangdong province. For financial reasons, the Procurement Company

Gothenburg decided that a follow-up could only be done on three production sites in Guangdong

(even though it is generally understood that problems concerning non-compliances may well be

worse in lesser known regions).

SwedWatch has interviewed the three contracting parties who won the bid for selling toys and hobby

articles to Gothenburg. The interviews have focused on company routines for securing the social

requirements down the supply chain. In addition, SwedWatch has also been in contact with several

wholesalers which supply the Swedish companies in order to check if and how they are working with

the social requirements.

SwedWatch has contracted a local partner consultant to visit and interview workers and

management at one factory supplying to each company. The method used is the same as for the

report “Reviewing Santa’s workshop”, page 9, http://www.swedwatch.org/swedwatch/rapporter.

In the end of the research process one of the Chinese suppliers reported our local worker

interviewers to the Chinese government agency, which investigates local businesses on charges of

violating laws covering “sensitive national data”. 4 This agency has closed several local NGOs that had

contracts with foreign organisations. Our local consultant was visited twice with four Chinese agents

searching its office, going through all correspondence and reports. Up to the writing moment

SwedWatch do not yet know the results of this investigation, but there is a risk that the consultants

we engaged will receive an order to close the office. SwedWatch most deeply regret this situation

and request all buyers to take action against this sort of behaviour from their suppliers. It is

extremely important that buyers inform its suppliers that they view independent investigations as

necessary in order to reach positive results for Corporate Social Responsibility-related issues.

4 SwedWatch do not know which supplier who made the report, it might be suppliers within the whole

research, including the follow-up report on Gothenburg’s purchasing of toys.

Overview of the contracting parties CSR work

Company Lekolar ABA-Skol Corporate Express Staples

Has Code of Conduct or the like?

Yes (since 2003) Yes (since 2009) Yes (since 2007)

Has routines for follow up of the social requirements?

Yes, but insufficient

No Yes, but insufficient

Purchases through wholesaler?

Yes, over 90% Yes, 100% Yes, 70%

Uses wholesalers that have routines for addressing social requirements?

Some, not all Some, not all Some, not all

Has informed their suppliers about the social requirements prescribed by Gothenburg?

No No No

Demands ICTI certified manufacturers?

No (it is a goal, but without time frame)

No (it is a goal, but without time frame)

No (it is a goal, but without time frame)

Knows any details about if working conditions comply with set standards?

No (trust the wholesaler)5

No (trust the wholesaler)

No (trust the wholesaler)

5 Exception for Lekolar’s direct purchase which accounts for around 10 %. In these cases Lekolar may have

more information and may also have visited the manufacturers.

The Procurement Company Gothenburg

Contracting parties(Lekolar, Corporate Express

Staples and ABA-skol)

Wholesalers (For ex Mickileksaker, Eber toys,

Continenta, PXS, ContiWest, Dacta)

Agent’s in Hong Kong or Taiwan

Manufacturers

Direct suppliers(manufacturers)

Fig 1. The figure shows the supply chain from the Procurement Company Gothenburg to

manufacturers in China. Many wholesalers who buy and sell toys for public procurement do not have

direct contact with the manufacturers. These middlemen usually have contact with exporters and

agents in Taiwan, Hong Kong or in mainland China.

2. The contracting companies

2.1 Lekolar AB Lekolar was previously part of Brio, but in 2004 Lekolar AB bought Brio Educational and Procuritas

became the new owners.6 Since 2007 Lekolar has been owned by funds in the international risk

capital investment company 3i. Lekolar only sells to public procurement agencies and companies, not

directly to consumers. According to Lekolar, the company is currently the market leader in all the

Nordic countries when it comes to toys, equipment and disposable goods for schools and pre-

schools. Lekolar has a presence in Norway, Denmark, Finland and Sweden. It has 250 employees and

an annual turnover of around SEK 1 billion.

Lekolar’s purchasing strategy

90% of Lekolar’s procurement goes through wholesalers. Only a minor part consists of its own direct purchase.7 Lekolar acknowledge that the biggest risk for non-compliance with the social requirements is when it buys through wholesalers who do not give information to Lekolar about the end-producer, referring to commercial confidentiality. According to Lekolar, it manages this risk by only contracting large, well-known wholesalers with long experience. (Nevertheless, very small wholesalers are evidently also used, as shown below). Lekolar told SwedWatch that it prefers long-term relationships with a few wholesalers rather than

having many different wholesalers with a high turnover. According to Ing-Marie Levin, Procurement

Manager, Lekolar analyses its own purchasing practices so that suppliers are not squeezed to too low

production costs: “We give long lead times, and we are very flexible when it comes to listening to the

needs of our suppliers. We make forecasts to avoid stress in the production. We do not need to

follow the latest fashion in toys; we can be more stable, which is good,” says Ing-Marie.

She also states that Lekolar’s supplying wholesalers have the same mindset, in not only looking for

the cheapest prices and in trying to maintain long-term relationships with suppliers.

Lekolar’s social requirements According to Ing-Marie Levin and Urban Bredhe, Sales Manager, Lekolar currently fulfils the social requirements set by Gothenburg Municipality. Since Lekolar saw that these requirements corresponded to its own Code of Conduct and ICTI’s requirements, the company did not undertake any extra work as a result of the social demands from the procurement company. Lekolar has had its Code of Conduct, which is basically the same as the ICTI Code of Practice, since 2003. Lekolar also signed the membership pledge in November 2007 stating that it will comply with the ICTI Code of Business Practice and the ICTI CARE process. In the pledge, Lekolar also undertook to

6 http://www.lekolar.se/templates/Page.aspx?id=151, accessed 12 May 2009.

7 Telephone interview with Ing-Marie Levin, Procurement Manager and Urban Bredhe, Sales Manager, Lekolar,

11 September 2009.

buy solely from ICTI-certified factories by the end of November 2007. In September 2009, Lekolar informed SwedWatch that it would allow either ICTI-certified factories or suppliers that have “started internal work” towards ICTI certification. However, at present Lekolar does not know exactly how large proportion of its manufacturers which are ICTI-certified or on its way to be so. (For a presentation and discussion of ICTI CARE see SwedWatch’s report “Reviewing Santa’s Workshop”, December 2009, http://www.swedwatch.org/swedwatch/rapporter). In 2003 Lekolar included an Appendix in its “Supplier’s Manual for shipment to LEKOLAR” in which its

Code of Conduct is set out. This supplier’s manual must be signed by all Lekolar’s suppliers, either by

direct producers or wholesalers. The seller actually accepts that it will “provide a list of complete

information about all production units, factories and subcontractors used for the manufacture of

products or their components ordered by LEKOLAR “. But, as stated above, this has not worked in

practice, since wholesalers would not give Lekolar information about their suppliers.

Lekolar’s follow-up

Lekolar says it trusts their wholesalers to fulfil all their social requirements down the supply chain to

the manufacturing. Today Lekolar checks first tier suppliers (of whom 90% are wholesalers) mainly in

verbal discussions during the annual meeting when setting new contracts. According to Lekolar, the

Code of Conduct is an important part of these discussions. Sometimes, Lekolar also asks for

documentation such as certificates, audit minutes or the like. However, Lekolar says it can only have

these discussions with their first-tier contracting party and needs to trust them to fulfil their

obligations down through the supply chain.

SwedWatch’s check of Lekolar follow-up

Lekolar has made some efforts to verify that their Code of Conduct is complied with among their few

direct suppliers. For example, one of the manufacturers (a direct supplier to Lekolar) provided

SwedWatch with a social audit report from December 2008.8 The audit was conducted by Intertek

Labtest. An auditor assessed the factory’s operations against the Ethical Trading Initiative (ETI) Base

Code and local legislation on a sampling basis over one day. No non-compliance issues were found.

Moreover, one of the supplying wholesalers, Anthony Peters, presented a Code of Conduct stating

the most important demands.9 One direct supplier wrote to Lekolar that it guarantees that the

factory does not use child labour, but stated that they are not part of ICTI and can show no

verification of their labour conditions.10

ContiWest, a small wholesaler which supplies both Lekolar AB and Corporate Express Staples under

the same purchase agreement for Gothenburg Municipality, had not heard of the social

requirements from Gothenburg Municipality before SwedWatch’s follow-up at the end of April

8 Sedex, the Supplier Ethical Data Exchange, is a membership organisation for businesses committed to

continuous improvement of the ethical performance of their supply chains. For more information see: http://www.sedex.org.uk/sedex/go.asp?u=/WebSite/Home&pm=6&location=About 9 Email from Ing-Marie Levin, Lekolar 30 April 2009.

10 Ibid.

2009.11 Katarina Westerberg, ContiWest, is the new owner of the company, and is therefore unsure

of the routines of the earlier owners. They used to visit the manufacturers, and judged the suppliers

to be good and reliable in general terms. As far as she knows, Lekolar has earlier discussed social

requirements verbally; however, in April 2009, ContiWest was asked to provide Lekolar with a Code

of Conduct including ILO conventions. Since then ContiWest has introduced various measures to

ensure that social demands are communicated to the manufacturers in China, for example to

develop a Code of Conduct and join SweToy in order to obtain support.12

Another wholesaler, PQX 102 APS, had not heard of any special social requirements within the

relevant procurement for Gothenburg Municipality before he was contacted by Lekolar as a result of

SwedWatch’s follow-up in April 2009.13 So far, the company has forwarded some verbal demands,

focused mainly on child and prisoner labour, to its suppliers. PQX supplies both Lekolar and

Corporate Express Staples. Erik Glimø, the owner of the wholesaler PXS, wrote to SwedWatch that

some other customers in Sweden and in other countries have stated social requirements to ensure

production in line with ILO conventions, but so far PQX has not yet set up any action plan on how to

make sure that ILO conventions are implemented throughout the supply chain. Erik Glimø has

informed Lekolar that his company uses “Supplier Self Assessment” to receive information from the

manufacturers on its working conditions.

Continenta AB14 is another supplier for Lekolar (and Corporate Express Staples) within the contract on toys for Gothenburg Municipality. This company does not have any routines for ensuring decent working conditions in production in China. In most cases, the supplier with which Continenta has a trading relationship is not the producing company, so Erica Rudolphson at Continenta states that the company does not actually know anything about the labour conditions in the production of their toys.15

Summary and recommendations

Lekolar should promptly communicate the social requirements prescribed by the Procurement Company Gothenburg to the wholesalers it is using and initiate a procedure which ensures that the demands are forwarded down the supply chain.

Lekolar needs to improve the follow-up of its Code of Conduct so that it is implemented at the Chinese toy manufacturers.

Lekolar should draw up a timetable stating when all the manufacturers it buys from (even if the purchasing is made through wholesalers) should be ICTI-certified, and follow up on that process.

In order to fulfil its obligations towards the Gothenburg Municipality, Lekolar will probably have to increase its direct purchasing or set up a much better controlling mechanism of its wholesaling structure.

11 Telephone interview Katarina Westerberg, ContiWest AB, 12 May 2009 and 23 October 2009.

12 Telephone interview Katarina Westerberg, ContiWest AB, 27 October 2009.

13 Email from Erik Glimø, PQX the 18 May 2009.

14 Email from Erica Rudolphson, Continenta, 19 May 2009.

15 As a result of SwedWatch’s follow up Continenta have begun to take advice from a consultant regarding how

to develop its CSR work.

Routines for buying practices can be further improved so that demands concerning prices, lead times and flexibility are not in conflict with manufacturers’ opportunities to fulfil the social requirements. This must be assured throughout the supply chain.

Manufacturer 1

Introduction

Manufacturer 1 was established in 1998 and is owned by a local businessman. The factory is situated

in Jianmen City, Guangdong16. The factory has 60 employees of whom 50% are locals and 50% are

migrant; about half the workforce are women and half men.17 The factory supplies the domestic as

well as the foreign market, particularly European buyers, with a range of coloured paper products.

The process goes from preparing the paper, printing, cutting, folding and pasting to packing.

Manufacturer 1 is new to the issues of corporate social responsibility and had never heard of ethical

Codes of Conduct, social requirements, social auditing etc. prior to the visit of SwedWatch’s local

consultant.

Due to practical circumstances (explained in the footnote) during the period of investigation, only

seven administrative personnel were interviewed outside the factory.18

Three interviewees were on

their way home, the other three administrative workers had left the compound to take a break, and

one was a security guard. Their ages ranged from 25 to 38 years old. Four of the interviewees were

male, three were female. The interviewees were from Hunan, Sichuan and also from the local area.

They had worked at the factory for between one and three years.

Lekolar began to buy from Manufacturer 1 through a Swedish and a Hong Kong agent in March 2009.

According to the Swedish agent, Hans GM Svensson, Manufacturer 1 then signed the Supplier’s

Manual including the Code of Conduct (as mentioned above).19 He carried out an inspection in July

2009, but found no non-compliance regarding the social requirements. According to Hans GM

Svensson, Manufacturer 1 is better than many comparable suppliers in the same area.

Compliance

The company provides a free dormitory and there are no signs of discriminatory practices or child

labour. The employer also provides personal protection equipment (PPE) for those who need it in the

printing ink department. All employees receive at least the minimum wage (which was set at RMB20

680 per month in this area).

16

SwedWatch local consultant factory visit 29 July 2009. 17

Total number of employees may differ depending on season and orders. 18

The factory is situated in an industrial area some kilometres from a city and quite isolated from shops and restaurants. 50% of the employees stayed inside the gated factory compound and were found not to leave the factory in the evenings. The security guard was also very attentive and all together this made it difficult for the researchers to reach the workers within a reasonable amount of time. 19

Information given during telephone conversation with Hans GM Svensson, 11 September 2009. 20

RMB = The Chinese currency, also called Yuan. The rate is 1 RMB = 1,06 SEK, 2009-11-12.

Non-compliance

Manufacturer 1 breaches the Chinese labour law in several areas. All of these are confirmed by the

management and presented below:

1. Excessive working hours

Working hours at Manufacturer 1 amount to around 11 to 12 hours a day, from 8.00 a.m. to 9.00 or

10.00 p.m., which is illegal according to Chinese law (see Appendix I). The workers worked seven days

a week without a break. The time records for May 2009 provided by the management indicate that

the workers worked an average of 11.5 hours per day on weekdays; 12 hours on Saturdays; and 9

hours on Sundays. Total working hours reached 78.5 hours per week. In May 2009, attendance

records indicate that 20 workers worked continuously May 2-27, without a day off.

2. Lack of correct overtime pay

Payroll documents, which were provided by management for the auditors’ review, indicate that the

factory guaranteed all its workers the legal local minimum wage of RMB 680 per month. Workers are

paid on a piece rate basis, so on top of the hourly wage the workers earn more if they are

experienced and fast. Two of the interviewees reported that the workers received RMB 800-1 000

per month. The payroll documents indicate that the workers’ monthly wages range from RMB 950 to

around RMB 3 000. This is in compliance with legal requirements. Overtime, however, is paid at the

same rates as regular working hours, which is inconsistent with established labour law (see Appendix

I for details).

3. Social insurance and benefits

Documents reviewed during the facility walk-through indicate that the factory provides

comprehensive social insurance to nine employees and that 20 machine operators are provided with

commercial accident insurance. The above reports indicate that implementation of the factory’s

insurance policy is not standardised i.e. not all employees are covered by the mandatory social and

accident insurance coverage. This practice is in breach of established law.

Workers can take personal leave and sick leave, although the workers are not provided with paid

personal and sick leave benefits as stipulated by law.

4. No contracts

Manufacturer 1 did not provide written labour contracts, which is mandated in China’s Employment

Contract Law.21 No contract could be produced at the time of audit.

5. Fire Safety

According to the Chinese Fire Prevention Law fire drills should be organised twice a year.

Manufacturer 1 had, however, not conducted any fire drills at the time of the assessment (end of July

2009). Fire extinguishers were checked once a year, but should be checked every month, by law.

21

Natlex, http://www.ilo.org/dyn/natlex/natlex_browse.details?p_lang=en&p_isn=76384, accessed 22 September 2009.

The exits in the production and dormitory buildings were not equipped with exit signs. No evacuation

maps were posted in the production and dormitory buildings.

6. Health and Safety

Manufacturer 1 did not provide any Health and Safety training for its employees as prescribed by the

Law of the People's Republic of China on Work Safety.22

General assessment

Given that Manufacturer 1 is totally new to CSR requirements, it is not surprising that several major

issues of non-compliances were found. Lekolar says it has gone through its Code of Conduct through

the agent Hans GM Svensson, but evidently this process needs to be modified and greatly improved.

According to SwedWatch’s local consultant, the manager of Manufacturer 1 is transparent about the

prevailing working conditions.23 He expresses willingness to adapt to any social demands that might

be required of him as long as the buyers are also willing to increase prices accordingly.

Actions taken after results were presented:

According to Lekolar, Manufacturer 1 had signed Lekolar’s Code of Conduct and should have known

about the social requirements when starting the production for Lekolar. Why this was not the case is

currently being followed up by Lekolar.24

When Lekolar was informed about the results of SwedWatch’s findings, the company investigated

the non-compliances at its manufacturer. The result of these investigations confirmed that working

hours sometimes seriously exceed the legal limits. Discussions are now proceeding on how to resolve

the situation. Lekolar informed Swedwatch that it will demand a change of wage structure at the

manufacturer so that the employees are paid a fixed monthly wage instead of piece-rate wages, and

overtime is paid at legal rates. All employees are to be covered by legal social insurance. Lekolar

further stated that employment contracts will soon be given to all employees. The non-compliances

concerning fire safety have already been remedied according to information from Lekolar on 30

October 2009.25 Health and Safety training has now been planned.

Overall, Lekolar has informed Swedwatch that Manufacturer 1 is very accommodating and ready to

change the non-compliance issues found. A corrective action plan is currently being outlined in

cooperation with the manufacturer. Lekolar will visit the manufacturer in November 2009. The

demand from Lekolar is that the manufacturer must fulfil its Code of Conduct, but also be ready to

address difficulties together with Lekolar.

As a result of the follow-up for the Procurement Company of Gothenburg, Lekolar is currently

considering the value of a BSCI certification for the manufacturers who, for various reasons, cannot

adapt to the ICTI CARE process. Lekolar has also contacted an audit company in China in order to

22

The Law of the People's Republic of China on Work Safety, http://english.gov.cn/laws/2005-10/08/content_75054.htm, accessed 22 September 2009. 23

Interview with manager at Supplier G by Swedwatch local consultant took place on 29 July 2009. 24

Email from Ing-marie Lavin, Procurement manager, Lekolar AB, 30 October 2009. 25

Email from Ing-marie Lavin, Procurement manager, Lekolar AB, 30 October 2009.

increase its presence in China. Further, the company is trying to find solutions to the issue of

obtaining information from its wholesalers regarding manufacturing addresses.

2.2 ABA-Skol ABA-Skol is a privately-owned family-run company that supplies material to pre-schools, schools and

after-school activities.26 The company was founded more than 40 years ago and the turnover is

approximately SEK 135 million. ABA-Skol has 45 employees, 20 000 customers, 7 500 articles and 400

suppliers.27 The head office and warehouse are located in Malmö. ABA-Skol has customers in Sweden

and Norway.

ABA-Skol’s purchasing strategy and social requirements

Like Lekolar, ABA-Skol does not trade directly with manufacturers; instead it buys all its products

through wholesalers. Moreover, there is often at least one middleman between the wholesaler and

the manufacturer. Since ABA-Skol is a rather small company, Purchasing Manager Lotta Feuk regards

the ICTI CARE process managed by ICTI as one of the most important ways of ensuring good working

conditions. ABA-Skol has been a member of SweToy since2006, which means that ABA-Skol should

only use factories that have started the ICTI CARE process.28 However, ABA-Skol has not

communicated any demands regarding use of ICTI process factories, nor does the company have any

statistics on how many of the manufacturers currently hold ICTI certificates.

ABA-Skol adopted a Code of Conduct in September 2009, and up until then the company had not

included any social demands in their purchasing.29 According to Lotta Feuk, the company is currently

focusing on working with REACH, the European Community Regulation on chemicals, and their safe

use.

SwedWatch’s check of ABA Skol’s follow-up

ABA-Skol started to develop a Code of Conduct in January 2009, which ABA-Skol provided

SwedWatch with in September 2009. In the same month, ABA-Skol sent their Code of Conduct to

their wholesalers with the request that suppliers sign and promise to assure that this code is

implemented down the supply chain to the manufacturing of the products. The wholesalers should

sign it and guarantee that the code is implemented down the supply chain. ABA-Skol has no further

plans for how to verify that their code is implemented. Lotta Feuk is aware of the difficulties, given

the fact that the company works through many middlemen. However, she trusts the wholesalers to

take their code seriously. She says that ABA-Skol has worked with most of its wholesalers for many

years and knows that they are trustworthy and serious. ABA-Skol has translated the Code into

English, and plans to translate it into Chinese.

26

The website of ABA-skol, http://www.aba-skol.se/ABA-Skol/foretaget.asp. 27

The website of ABA-skol and telephone interview with Lotta Feuk, Purchaser Manager, 22 September 2009. 28

Official letter from Klas Elm, CEO, SweToy, concerning the ICTI CARE process, dated 4 August 2006. 29

Telephone interview with Lotta Feuk, Purchasing Manager, 22 September 2009.

“We will start to work with the follow up of our Code of Conduct as soon as possible,” Lotta Feuk told

SwedWatch.

For the Procurement Company Gothenburg, ABA-skol has contracts with 66 wholesalers, including

AB Lars Sjöholm, Eber toys, Dacta and Jumbo Diset International. They all have contracts with agents,

mainly in Hong Kong, who have contracts with factories in mainland China. For example, Eber toys

does not know where its production takes place.30 It only has names of exporters in Hong Kong,

Taiwan and China. See Figure 1, page 5. An exception is AB Lars Sjöholm, where all the products for

Gothenburg were manufactured in Sweden.

Dacta gave information to SwedWatch about two production facilities in Guangdong province, which

both go through their agent company in Hong Kong. As regards its suppliers’ work on the social

criteria, the company writes: “Our dealer operates under a series of quality guidelines and holds

certificates from ISO9000, SA8000 and ICTI.” In the letter to SwedWatch, the company attached a

copy of an SA 8000 certificate.

Summary and recommendations ABA-Skol urgently needs to translate their Code of Conduct into Chinese and give it to the

suppliers (wholesalers) so that they can inform the workers of the content.

ABA-Skol urgently needs to implement routines on how to implement their Code of Conduct down the supply chain through, for example, guidance documents and training.

Regarding follow-up of the social requirements made by the Procurement Company Gothenburg in the contract, ABA-Skol should have promptly ensured that all its sub-suppliers knew about the demands and that they forwarded these demands down the supply chain.

ABA-Skol needs to improve follow-up of its social demands so that the requirements reach the workers at Chinese toy manufacturers.

ABA-Skol should draw up a timetable for when all manufacturers are to be ICTI-certified.

Since ABA-Skol only buys through wholesalers it needs to develop strong reporting structures to be able to follow how the wholesalers follow up the code down the supply chain. This could for example mean asking for certification, inspection protocols, documentation on training and translation of the code into local languages.

Improve routines for including CSR demands in the purchasing practices in order to ensure that demands concerning prices, lead times and flexibility do not conflict with the manufacturers’ ability to fulfil the social requirements.

30

SwedWatch was in contact with Eber toys several times in June 2009 in order to get factory addresses for the follow-up inspection.

Manufacturer 2

Introduction

Manufacturer 2 is a relatively large, Hong Kong-based company with its own labelled product range.

It manufactures baby and pre-school toys. According to the management, the company markets a

collection of developmental toys that offer educational advantages for children. All Manufacturer 2’s

labelled products are tested against various quality standards and, according to the company, it sets

high standards for the safety and durability of its products. The head office is in Hong Kong, where

the product design, engineering and tooling, marketing and order administration are located. The

toys are manufactured in China. The main markets are Europe and the USA, but toys are currently

distributed in 65 countries worldwide.

The factory inspected in this investigation was established in June 1998. It manufactures

Manufacturer 2’s own label products only. The factory employs a total of 250 people, of whom 70%

are female. According to both management and employees, the factory has no distinct peak or low

season since this type of developmental and baby toys are requested throughout the year.

A total of 30 workers were interviewed near the factory gate and the workers’ dormitory building.

The interviewees worked in the moulding, assembly, painting and packing workshops. Twenty-eight

people worked as production workers and two were security guards. Their ages ranged from 19 to

38 years old. All the interviewees were migrant workers from Hubei, Sichuan, Jiangxi and Guizhou

provinces, as is common at factories operating in Guangdong province. All the workers interviewed

had worked for the factory for less than two years; their work tenure ranged from two to eighteen

months.

ABA-Skol started buying from Manufacturer 2 through a British wholesaler 5 to 6 years ago. The

wholesaler says it is fully aware of social requirements from buyers and states that it fulfils these

demands by asking for certification from ICTI and SA8000.

Compliance

Manufacturer 2 is, in many ways, a high standard supplier. It has gone through many social audits

and holds certification from both ICTI and SA8000. There were no reports of discrimination,

harassments, punitive fines, child labour or non-compliance of fire safety requirements.

As regards social insurances and benefits, worker interviews indicated that Manufacturer 2 provides

their employees with the required insurance and benefits. However, some workers gave

contradictory information as to whether they received paid sick leave and annual leave, and none of

the workers interviewed had ever taken any sick or annual leave. The workers’ mixed reports

concerning leave benefits indicate that there is a need to improve communication to the employees

about the factory’s policies.

Non-compliance

In the off-site interviews, the workers at manufacturer 2 indicate non-compliance in some areas.

These indications need to be confirmed by further investigation from the buyers’ side, since the

management often gave another picture. The management has so far however, not confirmed the

non-compliant issues at any point. SwedWatch has therefore not been able to verify if the non-

compliance issues indicated by the reports from workers are correct or not. It is, however, quite clear

from the workers interviews that the workers are not satisfied with the working hours and the

compensation. Many workers complained that they work too long hours for too low pay. They

regarded their work at the factory as temporary, until such time as they could find better-paying

jobs.

1. Excessive working hours

Workers’ reports:

The workers interviewed from the assembly, painting and packing workshops reported an

unambiguous picture with overtime from 7.00 up to 10.00 or 11.00 p.m. almost on a daily basis, and

eight hours on Saturdays. Workers from these workshops were given every Sunday off. This report

indicates that these workers worked a total of at least 63 hours per week.

Four workers from the moulding workshop who were interviewed stated that they worked 12-hour

shifts and a total of 84 hours per week, either from 7.00 to 12.00 a.m. and again 5.00 to midnight or

from 12.00 to 5.00 p.m. and again from midnight to 7.00 a.m. The same workers reported that they

did not have any day off. This was also confirmed by other factory staff that was interviewed.

Management’s report:

Time records from April, May and June provided by the factory indicate that the workers did not

work overtime in the evenings; they worked eight hours overtime on Saturdays and did not work on

Sundays. The total working hours reached up to 48 hours per week, which is within the legal

requirements. The factory management strongly states that its operations are closed on Sundays and

that moulding department workers also are guaranteed Sundays off.

Conclusion:

The inconsistencies between the workers’ reports and the information gathered by the auditors on-

site indicate that one part is not giving correct information about working hours.

2. Incorrect overtime pay

Three workers (out of 30 in total) reported that they were paid by the hour, i.e. regular work hour

was paid at RMB 4.80 and all overtime, regardless of the day it was rendered, was paid at RMB 5.50

per hour. The minimum wage in this area of Shenzhen is RMB 5.17 per hour and overtime should be

paid at a rate of 150% on regular days, hence RMB 7.75 per hour, and 200% on rest days which gives

RMB 10.34 per hour. See Appendix I for details on legislation. 27 of the interviewed workers did not

want to share details on their compensation. However, ten workers claimed that 770 RMB was the

minimum wage guaranteed by the employer (900 RMB is the minimum wage stated by law in this

area). All workers interviewed reported that they earned between RMB 1000-1400 per month

including overtime depending on how much orders the factory had. Consequently, there are

indications from the workers that hourly wage and overtime compensation is not given at correct

rates at the factory.

Six workers stated that wages were paid between the 25th up to the 30th day every other month, e.g.,

wages for April were paid no earlier than June 25 and no later than June 30. According to Chinese

law, wages should be paid to workers within 30 days of the services being rendered. The other 24

workers did not want to share information on wage payments. Given the weak interview foundation

for this information, SwedWatch can only note that there are indications on either low awareness

among workers, or non-compliances at the factory. This needs to be further explored by the buyer.

General assessment

In the interview, the manager of Manufacturer 2 claims that the problems regarding insufficient

working conditions partly depend on buyers who do not pay for higher quality, safety and

international standard accreditations. He says that buyers tend to require higher standards, but at

the same time also demand lower prices.

Transparent reporting for buyers and auditors is the only way to address excessive overtime and

wage/price related issues. Manufacturer 2 needs to have a dialogue with the buyer about the

challenges he faces. The workers’ awareness and involvement needs to improve. Here the

manufacturer should give training and/or invite local NGO’s, consultants or buyers representatives

themselves to conduct training on health & safety and workers’ rights according to the law and

buyers’ Codes of Conducts.

Actions taken after results were presented:

The wholesaler responsible for purchasing from Manufacturer 2 has visited the factory and

conducted its own social audit to investigate further the indications of non-compliance issues found

by SwedWatch. Manufacturer 2 denies the issues reported by workers. The wholesaler informs

SwedWatch that some improvements concerning health and safety have been suggested after the

visit to the factory.

It considers Manufacturer 2 to be compliant with all CSR-requirements and the manufacturer has the

full support of the wholesaler.

2.3 Corporate Express Staples In July 2008, Corporate Express was bought by Staples, which is the world's largest office products

company.31 It markets a wide range of office products, including furniture, toys and educational

material. With USD 23 billion in sales, Staples serves both businesses of all sizes and consumers in 27

countries throughout North and South America, Europe, Asia and Australia.

CSR and purchasing strategy

Corporate Express Staples Company (CE) has had a Code of Conduct since 2007.32 According to

Pernilla Svensson, Purchasing Manager, this code is a part of the negotiations when Corporate

Express Staples Company (CE) decides whether to work with a supplier or not.33 The supplier must

sign a contract with CE in which a paragraph states that the supplier promises to fulfil all laws and

regulations in the producing country. Pernilla Svensson states that this means that it is regulated by

contract that all CE’s suppliers must follow the local labour laws in the production, presupposing that

all contracting parties understand that. However, the specific labour laws or ILO conventions are not

spelled out in the contract.

In addition to the obligation to sign the contract, Pernilla Svensson states that CE takes up the social

requirements in verbal discussions with the suppliers “from time to time”. CE is a member company

of the Swedish Toy Association (SweToy) and, as such, active in supporting the ICTI CARE process. CE

has not set up any specific goal concerning when they will buy exclusively from ICTI-certified

manufacturers, but Pernilla Svensson says that CE does give advantages to suppliers who can show

ICTI CARE certifications, or show in other ways that they work actively with CSR.

CE makes 70% of its purchases through wholesalers. It has had a long business relationship with

Micki Leksaker AB. For the current purchasing agreement with Gothenburg, it buys toys from a total

of 36 wholesalers (among them Micki Leksaker, Continenta and ContiWest in Sweden and PQX 102

APS in Denmark).

CE realises that CSR requirements cost money. According to Pernilla Svensson, the company tries to

offer reasonable lead times and prices in order for suppliers to be able to fulfil demands. However,

CE is not aware of whether these considerations will be taken up in the next negotiations between

the wholesaler and the manufacturer.

SwedWatch’s check of CE’s follow-up

31

Staples website, http://www.staples.com/sbd/cre/marketing/about_us/index.html, accessed 23 September 2009. Staples bought Corporate Express in 2008 why the name has changed from Corporate Express to Staples within the period of the contract with Gothenburg Purchasing Company. 32

According to Pernilla Svensson, Merchandising Manager, Corporate Express Staples Company, by phone, 8 October 2009. For information about the code, please see website, http://www.staples.com/sbd/cre/marketing/about_us/index.html, accessed 23 September 2009. 33

Telephone interview with Pernilla Svensson, Merchandising Manager, Corporate Express Staples Company (CE), 29 September 2009.

When taking part in the tender in the spring of 2008, Corporate Express Staples Company (CE) heard

of the social requirements from the Procurement Company Gothenburg for the first time. CE

considered that it already met the social requirements set out in the contract.

As already mentioned in the Lekolar chapter, three of Lekolar’s and CE’s common suppliers

(Contiwest, Continenta and PQX) had not heard of the social criteria set by Gothenburg. Pernilla

Svensson at CE says that since these social requirements were seen as being included in CE’s ethical

requirements, the company decided not to inform their suppliers about the social requirements from

Gothenburg Municipality. As explained above, these three wholesalers currently lack routines to

impose social requirements on their manufacturers and to follow up these requirements.

Another wholesaler, Lekohoj AB, was able to provide SwedWatch with a Code of Conduct; however,

it was adopted during spring of 2009, which means follow-up routines will not yet be in place.34 Micki

leksaker refers in their answer to SwedWatch to paragraph 7 in their contracts with Corporate

Express Staples Company, where it promises to fulfil all laws and regulations in the producing

country.35 Micki leksaker also refers to the fact that it is a member of SweToy and ICTI and has

committed itself to purchasing only from ICTI-certified factories. At present, 75% of its factories are

certified and the rest are in the process of certification.36 Micki Leksaker has informed SwedWatch

that it takes this work very seriously and has just employed a representative in China who will be

responsible for following up the social requirements at the manufacturers.

Summary and recommendation Regarding the follow up of the social requirements prescribed by the Procurement Company

Gothenburg in the contract, CE should have promptly ensured that all its sub-suppliers knew about the demands and that these sub-suppliers needed to cascade these demands down the supply chain.

CE urgently needs to introduce routines on how to implement their Code of Conduct down the supply chain through, for example, guidance documents, training etc.

CE should draw up a timetable for when all the manufacturers used should be ICTI-certified and strictly follow it up.

Improve its follow-up of its social demands so that the requirements reach the factory floors in China. Relying on ICTI CARE only is not enough.

To fulfil its obligations towards the Gothenburg Municipality, CE must in all probability increase its direct purchasing or set up much better controlling mechanisms for their middle-men structure. This could, for example, mean asking for certification, inspection reports, documentation of training, and translation of the code into local languages etc.

Improve routines for including CSR requirements in purchasing practices in order to assure that demands concerning prices, lead times and flexibility in orders do not conflict with the manufacturers’ ability to fulfil their social requirements.

34

E-mail from Henry Carlsson, Lekohoj AB, 29 May 2009. 35

E-mail from Per Aronsson, Sales Manager, Micki leksaker AB, 11 September 2009.

36 E-mail from Per Aronsson, Sales Manager, Micki leksaker AB, 30 September 2009.

Manufacturer 3

The factory was established in 2004 and is engaged in packing porcelain and stainless steel toys,

(small teapots, plates, tableware, etc.). The factory employs around 50 employees. Customers

include well-known retailers such as Walmart and K-mart.

There were no workers interviewed off-site due to practical difficulties.37 Instead, ten on-site workers

were interviewed during an announced visit. The workers were engaged in conversation in the

factory’s cafeteria while they were having lunch. While it was requested that the factory

management not be present during the discussions with the workers, factory personnel stood behind

the interviewees, and within hearing distance. It should be noted that this might affect the reliability

of the information given by the workers.

Compliance

The factory went through the ICTI annual assessment in June 2009 just before SwedWatch’s visit, and

all necessary documentation, e.g. employment contracts, policies, regulations and training records

were found to be in compliance with established standards. Manufacturer 3 did not employ any child

labourers and there is no indication of discrimination or harassment. The living conditions at the

factory, as reported by the workers and as noted by the auditors, are better than the normal

conditions in the local area.

The factory had established a workers’ committee composed of five worker representatives, who

were elected by the workers themselves. Minutes of the committee meeting, which were provided

for the auditors’ review, indicate that the committee is involved in resolution of workplace issues

including the prevention of work-related injuries/accidents.

Non compliance

Interviews, documentation and observations showed that Manufacturer 3 most likely did not comply

with the Chinese law regarding working hours and social insurance. Non-compliances were also

indicated regarding fire precautions. Moreover, the factory management was found to be lacking in

transparency practice, particularly with regard to its working hours practice.

1. Excessive working hours

The factory’s official regular working hours were 8.00 to 12.00 a.m. and 2.00 to 6.00 p.m. The time

records provided by the factory management for the auditors’ review indicate that the workers

37 On 23 August (a Sunday) the interviewees could not find any workers from the factory to talk to outside the

factory. The interviewers again tried to talk to factory workers during the afternoon of 24 August, between

4.00 and 6.30 p.m., and 8.00 and 9.00 p.m., but no workers came out of the factory. It was also noticed that

there were several CCTV cameras installed near the factory entrance. Since the factory entrance was very

narrow and clear of any obstructions, all activities could easily be captured by the monitoring system. The

researchers therefore completed their mission without having collected information from workers off-site at

Factory 3.

punched their cards during regular working hours, and two to three evening overtime hours per

month. The records did not indicate that the workers worked at weekends (including the Sunday

before the factory visit). The factory management also reported that the workers seldom worked

evening overtime.

Research, however, indicated that the information provided by management was not correct. For

example, when asked about how many meals they get in a day, one worker said:

“We are given night meals every day as long as we finish our work, usually at around 10 pm.”

In addition to this, the auditors observed that the lights on the second floor, which houses the only

packing production line, were turned on in the afternoon and evening of 23 August (a Sunday).

The information gathered indicates that the workers at Manufacturer 3 worked at least 66 hours per

week, and that the workers were not guaranteed one day off per seven days, two breaches of

Chinese legislation.

2. Social insurance and benefits

Only the eight administrative employees were provided with social insurance and none of the

production workers were provided with full social insurance, as stipulated by law. 50 employees

were provided with commercial accident insurance only. This was confirmed by management during

the factory visit. The factory paid all medical expenses for work-related injuries.

Manufacturer 3 provides paid sick leave, but does not have paid annual leave. This information was

gathered by document review, and was confirmed by both workers and management.

3. Fire precautions

The cycle shed adjoining the main production building had been converted into a warehouse where

no fire extinguishers were installed. The auditors noted an electric kiln on the third floor of the

production building where the warehouse was located. While it was reportedly seldom used, it was

a potential fire hazard as it was placed near flammable materials, such as paper and plastic boxes,

which were also stored in the same warehouse.

General assessment

Manufacturer 3 is fulfilling basic requirements for working conditions. However, indications of non-

transparency are worrying, since transparency is a precondition for continued improvement and

good partnership between supplier and buyer. The difficulties in conducting interviews with workers

without the management being present is also a worrying sign and may strengthen the picture that

Manufacturer 3 is not transparent about the real working conditions.

It is also important to note that this factory is only engaged in the packing of the products, which are

porcelain and stainless steel toys. In future it would be well worth also investigating the working

conditions at the actual place of production of these toys.

Actions taken after the results were presented:

The wholesaler responsible, Micki Leksaker, has asked Manufacturer 3 to respond with a corrective

action plan for the non-compliance issues. The manufacturer has explained that several issues taken

up are now in order: annual paid leave is provided and the fire precaution issues have been resolved.

Regarding the issue of not covering all employees with the legal required social insurance,

Manufacturer 3 refers to a social insurance waiver issued by the Government Department of

Chaozhou Province. (These sorts of waivers are common, but do not, however, change the legal

requirement, which says all employees should be covered by social insurance. SwedWatch’s

recommendation would be that Micki leksaker/CE can accept this waiver but should advise

Manufacturer 3 to increase the number of production workers covered by full legal social insurance).

Regarding indications of breaches of legal working hours, Manufacturer 3 writes in the corrective

action plan that production and time records have been reviewed and adjusted. It also states that

the staffs responsible for recording time and production are now being trained and reminded to

carry out the job seriously to ensure the accuracy of production and time records.

Manufacturer 3 also states that it will improve the transparency of its working hours practices. Micki

leksaker/CE will in all probability need to take further action to ensure that this occurs.

Conclusions concerning non-compliances

Manufacturer 1 Manufacturer 2 Manufacturer 338

Certification ICTI and SA8000 ICTI

Buyer Lekolar through an agent ABA Skol through an agent Corporate Express Staples through Micki Leksaker

Labour relations No union exists. Management state that a union exists, but none of the workers were aware of a union.

Workers had elected their own representatives to a workers’ committee

Excessive OT Working hours exceeding legal limits, confirmed by management.

Working hours exceeding legal limits according to workers, not confirmed by management.

Working hours exceeding legal limits according to workers and observation, management stated legal working hours.

39

Guaranteed one day off

The workers occasi-onally worked seven days a week without a break, confirmed by management.

Workers reported that moulding workers worked 7 days a week, management stated that factory is closed on Sundays.

Indications from observations that one day off per 7 days were not guaranteed, management stated 1 day off were given.

40

Correct OT pay OT was paid only at regular rates (in breach with law), confirmed by management.

Some workers reported illegal rates of OT, management states OT is compensated at legal rates.

Because of incomplete time records, it could not be verified whether OT was compensated at legal rates.

Employment contracts to all workers

Did not provide contracts, confirmed by management.

Provided contracts, one worker told temporary workers did not receive contracts. Management states it always gives contracts.

Provided contracts to all employees.

Health & Safety problems

Did not provide any health and safety training, confirmed by management.

No indications of non-compliance, except need for better enforcement of PPE.

No indications of non-compliance

Fire precautions Did not comply with regulations according to the Fire Prevention Law, confirmed by management.

No indications of non-compliance.

There were some fire precaution issues observed at the factory visit.

Paid sick & annual leave

Paid sick & annual leave were not provided, confirmed by management.

Paid sick & annual leave were provided according to management. Workers lacked awareness and none had availed sick or personal leaves.

Provides paid sick leave, but does not have paid annual leave. Confirmed by workers and management.

Provision of full social insurance

Not all employees are covered by the mandatory social insurances, confirmed by management.

All employees are covered with full social insurances as according to law.

Only administrative employees were provided with full social insurance. Management refers to having a waiver from the local government.

38

Only on-site interviews with workers conducted (see above). 39

After SwedWatch shared the results, Manufacturer 3 stated that it will now improve the systems in order to ensure legal working hours. 40

After SwedWatch shared the results, Manufacturer 3 stated that it will now improve the systems in order to ensure legal working hours, including guarantee of one day off per week.

3. Conclusions The Procurement Company Gothenburg’s social requirements refer to the ILO Core Conventions. It is

SwedWatch’s conclusion that the working conditions in the three factories complied with some of

the core conventions, namely the Convention against Forced Labour, the Minimum Age Convention,

the Equal Remuneration Convention as well as the Discrimination Convention. The core conventions

concerning freedom of association and the right to collective bargaining have not been implemented,

given the fact that China prohibits freedom of association. However, companies can encourage the

employees themselves to elect their representatives and start to involve themselves in collective

representation. This was not done at factories 1 and 2, but neither could SwedWatch find evidence

of employers actively trying to prevent workers from doing this.

The Procurement Company Gothenburg’s social requirements also state that national laws should be

followed concerning working conditions. This was not fully met by any of the suppliers and much less

so in the case of Manufacturer 1 (Lekolar’s supplier). If the indications given by the workers

concerning excessive overtime, not being guaranteed one day off per week and non-provision of

correct overtime pay are confirmed at manufacturers 2 and 3, it means that all three suppliers are

acting in breach of Chinese legislation in respect of these issues.

Non-compliance was found in two manufacturers concerning fire precautions. It is often argued that

fire precautions is one of the first issues to be corrected when starting with CSR compliance work,

however this shows that poor fire compliance can still exist at factories which have gone through

many social audits.

Other non-compliances can be concluded in non-standardised social insurance (at 2 of 3 suppliers)

and unpaid sick and annual leave (more or less indications at all three suppliers). Compliance with

legal standards was higher concerning copies of employment contracts (at 2 of 3 suppliers41) and

health and safety (indicated mostly compliance at 2 of 3 suppliers) provided.

Even though manufacturers 2 and 3 had a better result in our study than Manufacturer 1, at these

two suppliers there are indications of non-transparency methods unseen in Manufacturer 1 who is

yet to be introduced to Codes of Conducts and social audits. Since transparent reporting on the

working conditions at the factories is the basis for improvements for workers, this is worrying and

must be prevented in future relations between buyers and suppliers. The reasons behind this are

often that suppliers feel that buyers have little understanding of the difficulties in complying with

standards; hence it is easier to fake documents.

The supply chains of toys and hobby articles are very complex; this tends to increase the risk of not

complying with basic social requirements. In the majority of cases, the buying companies do not

know where production takes place. While understanding that commercial confidentiality is

necessary, there is still a need for all parties to obtain more knowledge about the conditions at the

production factories. The three contracting companies inspected in this investigation would need to

extend their knowledge of working conditions in China in general and of monitoring routines

specifically. Buying companies should be able to answer questions on where and how production

takes place. Most companies refer only to ICTI CARE; however it has been shown that this is not

41

Some indications at Supplier 2 that they did not provide contracts for short term workers though.

enough to assure decent working conditions in toy manufacturing. For SwedWatch’s view on ICTI

CARE please see the conclusion of the report “Reviewing Santa’s Workshop”, published at the same

time as the study in-hand (LINK).

There are several discrepancies in the way the Procurement Company Gothenburg’s social

requirements have been used, or rather not used, on the part of the contracting companies Lekolar,

ABA-Skol and Corporate Express Staples. The companies have not forwarded the social requirements

to their suppliers, so these suppliers have not made extra efforts to ensure these social requirements

are fulfilled down the supply chain. The companies argue that they already have social requirements

included in their normal business relationship, but as SwedWatch could show above, these social

requirements are often not clear to the many middlemen in the supply chain. ABA-Skol did not adopt

a Code of Conduct or start including social requirements in their contracts until autumn 2009, which

is a clear violation of the social requirements set out by the Procurement Company Gothenburg.

There is also a need to revise the social requirements set by the Procurement Company Gothenburg.

As it is at present, membership of ICTI is seen as verification that the company complies with the

social demands. All the companies can do that, but it does not mean that they fulfil the social

requirements in any real sense. The ICTI Code of Business Practice does not even include ILO’s core

conventions which the Procurement Company Gothenburg says constitute one of the basic

requirements.42 This must be reviewed and revised in coming tenders.

ICTI CARE has decided to accept 66 hours a week as a working hour standard,43 but the Procurement

Company Gothenburg insists that the companies should follow national laws (in China maximum 40

hours per week and 36 hours overtime per month). In other words, when the companies report

following ICTI CARE, this is actually not in line with the social requirements prescribed by the

Procurement Company Gothenburg. This must be resolved in coming tenders.

SwedWatch’s view is that this follow up should be regarded as a starting point for improved CSR

monitoring by companies supplying public institutional buyers. Public buyers have quite recently

started to include social demands in their tenders, and it will take some time before all parties have

understood what these demands mean in practice. However, it is crucial that better communication

about what is expected of each party in the supply chain starts immediately, in order for these

demands to become practice and lead to improved working conditions in production. In China, as in

many low-income countries, breaches of national labour legislation are common. In order to ensure

compliance, it is therefore necessary that companies engage in dialogue with their suppliers, that

they build capacity and provide support. The companies should also reconsider their own buying

practices as well as best standard of monitoring and verifying the standards set. It is crucial to

prioritise workers’ participation in these monitoring systems, and in the long run workers’

organisation. Without these key measures, there will be no lasting improvement of working

conditions in Chinese toy manufacturing.

42

The ICTI Code of Business practice, http://www.toy-icti.org/info/codeofbusinesspractices.html 43

Telephone interview with Ian Anderson, Director Operations Asia, ICTI Care, 24 September 2009. Chinese document sent from SwedWatch consultant in China with an ICTI policy from 22

July 2009 confirms this.

Recommendations

To the Procurement Company:

1. Revise the social requirements (as explained above). As a basic requirement, contracting

parties should be able to present a Code of Conduct translated into English and local

language in the producing countries.

2. Give more detailed guidance on methods for follow-up.

3. Ensure that, in coming tenders, the social requirements are also matched with changed

purchasing practices (give advantages to those who can really show ambitious CSR work).

To the contracting companies (Lekolar, ABA-Skol and Corporate Express Staples)44

1. Take immediate action on the indicated non-compliances found, together with the

suppliers. Be ready to change purchasing practices if these are found to explain or

contribute to the problems. Examples of this could be to give longer lead times, stop

issuing fines for late deliveries, better planning when placing orders, try to estimate costs

for compliance and pay reasonable prices. The focus should be on transparency and

sustainable improvements.

2. Translate the Codes of Conduct into English and Chinese and communicate them down

the supply chain.

3. Develop and extend the monitoring of social requirements down the supply chain.

4. Influence ICTI CARE to include ILO core conventions and stick to national laws regarding

working hours.

5. Increase direct trade, concentrate purchasing to fewer suppliers, and obtain more

information about production.

6. Engage in capacity building, worker training etc. (not only social auditing).

To the manufacturers involved

1. Respect and facilitate internal & external social audits including workers interviews ensuring each individuals safety.

2. Take action on the indicated non-compliances found, together with the buyers. The focus

should be on transparency and sustainable improvements.

3. Communicate the customer’s Code of Conduct down the chain.

44

Please also see the specific recommendations in every company section above in the report.

4. Discuss with buyers how to share costs (by allowing more time, improving planning or

paying higher prices, for example) for increased social requirements. Report openly on

difficulties in following requirements if buyers are not ready to pay the price for these.

5. Be transparent. Discuss the challenges rather than hide them from the buyers.

6. Involve employees by arranging worker training with external experts (workers’ rights

NGOs or consultants).

List of References ICTI Code of Business practice, http://www.toy-icti.org/info/codeofbusinesspractices.html , accessed 2 October 2009. ICTI, Appendix IIa: Guidance Document, http://www.toy-icti.org/info/appendixII.html, accessed 2 October 2009. ILO Core conventions, http://www.labourstart.org/rights/#en, accessed 1 October 2009. ILO’s C1 Hours of Work (Industry) Convention, http://www.ilo.org/ilolex/english/convdisp1.htm, accessed 1 October 2009.

ILO C14 Weekly Rest (Industry) Convention, http://www.ilo.org/ilolex/english/convdisp1.htm,

accessed 25 September 2009.

ILO, Regulations concerning minimum wages in enterprises, 1993,

http://www.ilo.org/dyn/natlex/docs/WEBTEXT/44000/65000/E94CHN02.htm, accessed 25

September.

Labour Act. Dated 5 July 1994, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/37357/64926/E94CHN01.htm#Chap3, accessed 25 September 2009. Labour Insurance regulations of the People’s Republic of China, http://www.novexcn.com/labor_insur_regs_51.html, accessed 25 September 2009. Natlex, http://www.ilo.org/dyn/natlex/natlex_browse.details?p_lang=en&p_isn=76384, accessed 22 September 2009. SweToy, Official letter from Klas Elm, CEO, SweToy, concerning the ICTI CARE process, dated 4 August 2006. The Swedish Ministry for Foreign Affairs, Human rights in China 2007,

http://www.manskligarattigheter.gov.se/extra/faq/?module_instance=3&action_question_show.255

8.0.=1, accessed 1 September 2009.

The Law of the People's Republic of China on Work Safety, http://english.gov.cn/laws/2005-

10/08/content_75054.htm, accessed 22 September 2009.

The Law on the Prevention and Treatment of Occupational Diseases, May 1, 2002,

http://www.ilo.org/dyn/natlex/natlex_browse.details?p_lang=en&p_country=CHN&p_classification=

14&p_origin=COUNTRY&p_sortby=SORTBY_COUNTRY , accessed 15 October 2009.

Websites

ABA-skol, http://www.aba-skol.se/ABA-Skol/foretaget.asp

Lekolar, http://www.lekolar.se/templates/Page.aspx?id=151, accessed 12 May 2009.

Staples website, http://www.staples.com/sbd/cre/marketing/about_us/index.html, accessed 23

September 2009.

The Procurement Company Gothenburg, http://www.upphandlingsab.goteborg.se/, accessed 18

August 2009.

Interviews and email correspondence

Ann-Christin Olsen, Eber toys, several contacts per phone and email, June 2009.

Hans GM Svensson, agent for Lekolar, telephone conversation, 11 September 2009.

Henry Carlsson, Lekohoj AB, 29 May 2009.

Ian Anderson, Director Operations Asia, ICTI Care, 24 September 2009.

Ing-Marie Levin, Procurement Manager and Urban Bredhe, Sales Manager, Lekolar, telephone

interview, 11 September 2009 and email correspondence from April to November 2009.

Katarina Westerberg, ContiWest AB, 12 May 2009, 23 October 2009 and 27 October 2009.

Lotta Feuk, Purchaser Manager, ABA-Skol, telephone interview, 22 September 2009.

Erica Rudolphson, Continenta, email 19 May 2009.

Erik Glimø, PQX 102 APS, email 18 May 2009.

Per Aronsson, Sales Manager, Micki leksaker AB, email, 11 September 2009. Pernilla Svensson, Merchandising Manager, Corporate Express Staples Company, telephone interview, 29 September 2009 and 8 October 2009 and email correspondence April to November 2009. Other sources

“Implementation Measures for Paid Annual Leave for Employees of Enterprises”, which was promulgated by the “Ministry of Human Resources and Social Security”, came into force on 18 September 2008. Information received by e-mail from SwedWatch local consultant 5 October 2009.

Opinion of the Ministry of Labour on Several Issues Concerning the Implementation of the PRC

Labour Law,(August.11, 1995 ), Art. 59. Sent to SwedWatch by its Chinese consultant.

Appendix I. The legal framework Below is a presentation of the legal framework for decent working conditions in China. SwedWatch

also elaborates on how this framework differs or refers to the ICTI Care standard (which most

Swedish toy companies abide by).

China and ILO Core Conventions

China has been a member of the International Labour Organisation (ILO), the UN organisation for

labour issues since 1983.45 The ILO has agreed on eight core conventions dealing with forced labour

and slave labour, freedom of association, the right to organise and the right to collective bargaining,

the right to equal remuneration for work of equal value, discrimination and child labour.46

China has ratified four of the ILO core conventions; the ones on Equal Remuneration Convention (no

100), Minimum Age Convention (no 138), Worst Forms of Child Labour Convention (no 182) and Non-

Discrimination, Employment and Occupation (no 111). China’s laws are quite well adapted to ILO’s

core conventions with the important exception of the ban on union rights and collective bargaining.47

China has still not ratified the Convention on Freedom of association, the right to organise and the

right to collective bargaining (conventions 87 and 98). As a member of ILO, China is however in

reality still obliged to follow these conventions. The ILO core conventions are the basic set of rules

that most larger companies and public purchasers will include in their sets of standards. Worth

mentioning here is that this is not the case with the ICTI Code of Business Practice, which does not

refer to the ILO conventions, except on the child labour issue.48

Chinese national legislation on working conditions

Working hours

Legal working hours in China are 40 hours per week. On top of that, the maximum overtime per week

should be no more than 36 hours per month, making a maximum working week of 49 hours.49 ILO’s

Hours of Work (Industry) Convention sets the limit to 48 hours of regular work per week.50

45 The Swedish Ministry for Foreign Affairs, Human rights in China 2007,

http://www.manskligarattigheter.gov.se/extra/faq/?module_instance=3&action_question_show.2558.0.=1,

accessed 1 September 2009. 46

ILO Core conventions, http://www.labourstart.org/rights/#en accessed 1 October 2009. 47

The Swedish Ministry for Foreign Affairs, Human rights in China 2007, http://www.manskligarattigheter.gov.se/extra/faq/?module_instance=3&action_question_show.2558.0.=1, accessed 1 September 2009. 48

The ICTI Code of Business practice, http://www.toy-icti.org/info/codeofbusinesspractices.html 49

Article 41 of The Chinese Labour Law stipulates that the total extended working hours in a month shall not exceed 36 hours. 50

The ILO’s C1 Hours of Work (Industry) Convention states that working hours shall not exceed eight in the day and 48 in a week. It is allowed to employ people for shifts in excess of eight hours per day and 48 hours per

Nevertheless, the industry praxis in China is that working hours are much longer. The different

provincial governmental authorities are able to permit waivers to companies, especially in industries

with seasonal production cycles like the toy industry.51 On the basis of industry praxis and the

exceptions issued by local governmental authorities, ICTI CARE has decided to accept 66 hours a

week as a working hours standard.52

“We know that the working hours are much higher most of the time and that is why we want to bring

it down step by step. The most important thing is to get the factories to be transparent and that they

pay the workers with the correct overtime compensation”, says Ian Anderson, Director of ICTI CARE

for Asia.

The goal is that all ICTI certified factories will meet the 66 hour working week rule by 2012. ICTI CARE

has set up three categories for their certified factories; class A factories already comply with 66

working hours a week, within class B ICTI CARE accept that employees work 72 hours per week and

within the category “conditional” more than 72 hours working hours are accepted. According to ICTI

CARE, class B and Conditional Seal Factories needs to participate in a Continuous Improvement

Program (CIP) so that continuous reduction of working hours can be ensured.53

All workers have the right to one free day a week according to Chinese law.54 This is also in

accordance with the ILO convention no 14 Weekly Rest (Industry) Convention, ratified by China.55

ICTI CARE also demands from all ICTI Care certified factories that employees are guaranteed the right

to minimum one day rest per seven days.56

Payment

China has a system with different set minimum wages for different regions.57 All employees must be

guaranteed payment of the legal local minimum monthly wage. In the areas covered by this research,

minimum wages varied between RMB 770 and 900 per month depending on the location of the

week, but only if the average number of hours over a period of three weeks or less does not exceed eight per day and 48 per week (Article 2c). http://www.ilo.org/ilolex/english/convdisp1.htm 51

Information given by Ian Anderson, Director Operations Asia, ICTI Care, 24 September 2009. Waivers that permit more working hours than the law are more or less common in different regions and differ from time to time, according to Ian Andersson. 52

Telephone interview with Ian Anderson, Director Operations Asia, ICTI Care, 24 September 2009. Chinese document sent from SwedWatch consultant in China with an ICTI policy from 22 July 2009 confirms this. The Procurement Company Gothenburg though, demands that the companies should follow national laws. 53

Chinese document sent from SwedWatch consultant in China with an ICTI policy from 22 July 2009 confirms this complemented by e-mail correspondence between ICTI CARE and SwedWatch Chinese consultant, accessed 8 September 2009. 54

Labour Act. Dated 5 July 1994, CHAPTER IV, Section 38. 55

ILO C14 Weekly Rest (Industry) Convention, http://www.ilo.org/ilolex/english/convdisp1.htm, accessed 25 September 2009. 56

ICTI, Appendix IIa: Guidance Document, http://www.toy-icti.org/info/appendixII.html 57

Regulations concerning minimum wages in enterprises, 1993, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/44000/65000/E94CHN02.htm, accessed 25 September 2009-09-25.

factory.58 Overtime is legally required to be paid at 150% for weekday and 200% for rest day.59

Overtime on national holidays must be paid at 300%.60

Contracts

The 1994 China Labour Law stipulates that “labour contracts shall be concluded if labour

relationships are to be established” (Article 16).61 The Labour Contract Law, effective as of 1 January

2008, reaffirms the same requirement in its Article 10 and further provides that “the employer and

the employee shall each hold one copy of the labour contract”.

Insurance

The Chinese Labour Law mandates that all employees should be provided with comprehensive social

insurance; retirement, accident, medical and unemployment insurance.62 However, the govern-

ment’s insurance program is not popular with the workers, especially not with migrant workers,

because they cannot bring the social insurance coverage with them when they move from one city to

another, as is often their practice.63 As a compromise, local governments may issue waivers that

allow factories not to provide 100% social insurance coverage for employees. However, if employers

have not received any permission for exceptions, they must cover all employees with the above

mentioned compulsory insurance cover.

Child labour

China has ratified ILO Convention no 182 regarding the elimination of the worst forms of child labour.

According to the Chinese labour law employers are not allowed to employ workers under the age of

58

Information gathered by SwedWatch’s local consultant and given in e-mail correspondence in September 2009. 59

Labour Act. Dated 5 July 1994, CHAPTER IV, section 44, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/37357/64926/E94CHN01.htm#Chap4 60

“Implementation Measures for Paid Annual Leave for Employees of Enterprises”, which was promulgated by the “Ministry of Human Resources and Social Security”, came into force on 18 September 2008. Information received by e-mail from SwedWatch local consultant 2009-10-05. 61

Labour Act. Dated 5 July 1994, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/37357/64926/E94CHN01.htm#Chap3 62

Labour Insurance regulations of the People’s Republic of China, http://www.novexcn.com/labor_insur_regs_51.html, accessed 25 September 2009. Labour Act. Dated 5 July 1994, CHAPTER IX, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/37357/64926/E94CHN01.htm#Chap9, accessed 28 September 2009. 63

The information is given by SwedWatch’s local consultant who has interviewed many hundreds of migrant workers and collected their views on the social insurances scheme. The consultant has also collected information on the local authorities’ policies and examined the waivers issued to the local manufacturers. (e-mail correspondence in September 2009).

16.64 There are also specific rules protecting young workers aged 16 to 18 from hard and hazardous

working conditions.65

Health & Safety

China has quite comprehensive legislation on health and safety requirements, including fire safety

regulations.66 The law requires, for example, regular health and safety training, fire drills twice a year

and use of adequate Personal Protection Equipment (PPE).67

Paid sick and annual leave

The law says that for an employee whose working tenure at the same company is one to ten years,

there should be five days paid annual leave per year.68 If the employee was asked by the factory to

not take the leave, he/she should be paid at 300% of the basic wage for those five days.69 According

to Chinese law, sick leave can be paid less than the local legal minimum wage, but should not be paid

less than 80% of the local minimum wage.70

64

Provisions on Prohibition of Child Labour, http://english.gov.cn/laws/2005-07/25/content_16967.htm, and Regulations Banning Child Labour, 2002, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/63806/65269/E02CHN01.htm, accessed, 25 September 2009. 65

Labour Act. Dated 5 July 1994, CHAPTER VII, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/37357/64926/E94CHN01.htm#Chap7, accessed 28 September 2009. 66

See, e.g. Labour Act. Dated 5 July 1994, CHAPTER VI, Law of the People's Republic of China on Work Safety,

June 29, 2002, http://english.gov.cn/laws/2005-10/08/content_75054.htm and The Law on the Prevention and

Treatment of Occupational Diseases, May 1, 2002,

http://www.ilo.org/dyn/natlex/natlex_browse.details?p_lang=en&p_country=CHN&p_classification=14&p_ori

gin=COUNTRY&p_sortby=SORTBY_COUNTRY , accessed 15 October 2009.

68

Labour Act. Dated 5 July 1994, CHAPTER IV, section 44, http://www.ilo.org/dyn/natlex/docs/WEBTEXT/37357/64926/E94CHN01.htm#Chap4 69

“Implementation Measures for Paid Annual Leave for Employees of Enterprises”, which was promulgated by the “Ministry of Human Resources and Social Security”, came into force on 18 September 2008. Information received by e-mail from SwedWatch’s local consultant 5 October 2009. 70

Opinion of the Ministry of Labour on Several Issues Concerning the Implementation of the PRC Labour Law, (August.11, 1995 ), Art. 59. Sent to SwedWatch by its Chinese consultant.

Appendix II.

Kommentarer till ”SwedWatch report Toys Gothenburg”

Vi har valt att svara direkt på SwedWatch’s rekommendationer; ”Recommendations to the contracting

companies” under punkter 1 – 6:

1. Lekolar: Our manufacturer has taken actions for this and the plan is to be ready in 6 months with

the improvements. After that we will have an ICTI audit conducted by an audit company in China.

We will also personally visit the factory again in April or May. For your information our lead time is

90 – 120 days , we have never demanded fines for late deliveries. Of course we will regularly

follow up this with the factory under this period in order to see that the improvements will be

made and if we can be of any assistance for them with this work.

2. Lekolar’s Code of Conduct is translated into Mandarin (pls see enclosures which was sent over

yesterday to SwedWatch). We will send out this to all our suppliers and whole sellers who are

doing business in China and demand that they send this further to the factories involved in

production to Lekolar and return a signed copy to Lekolar.

3. Lekolar : we will find solutions and system for this, also together with the whole sellers.

4. Lekolar has been in contact with SweToy’s Klas Elm about this and got the following answer: Vad

jag förstår så är ILOs kärnkonventioner inbakade i Code of Conduct – även om inte alla är

uttryckligen refererade till. Att de borde tydligt refereras till kommer att framföras till ICTI för ev.

ändring. När det gäller arbetstider (i peak-season) är det ju en av de största utmaningar i hela

CARE arbetet. Vi har lyckats få ner timmarna och det bästa sättet att fortsätta det arbetet är att

på alla sätt stötta ICTI CARE Process. Dels att ställa krav på leverantörerna, men också att föra

resonemang med beställarna om att lägga ordrar i tid och kräva rimliga leveranstider. Klas

5. Lekolar: It is also our ambition as well to concentrate our purchasing to fewer suppliers with wider

assortment since this will make the controls for observance of our CoC, the production, quality etc

better. We will also try to get more transparency when buying through whole sellers.

6. Lekolar will communicate this to all suppliers at personal meetings or correspondence, in our

Suppliers Manual, in which our Code of Conduct is a part, and which will be updated during early

spring next year and sent out again to all our suppliers.

Tillägg: Vi kommer under våren att fortbilda Lekolars egna inköpare i CSR-arbete för att höja och bredda

kompetensen inom företaget på detta område och att skapa tydligare rutiner för att systematiskt driva ett

förbättringsarbete i vår leverantörskedja. Vi kommer också att öka vår egen närvaro i Kina under 2010 genom

ett ökat antal fabriksbesök.

Vi kommer att diskutera med icke leksaksleverantörer möjligheten av en BSCI certifiering när man anser att ICTI

certifiering endast är för leksaksföretag.

Som tidigare har meddelats anlitar vi ett revisionsföretag i södra Kina, som utför CoC revisioner,

fabriksrevisioner som inkluderar SA8000. Detta företag kommer att få i uppdrag av oss att göra revisionen hos

vår leverantör Artek när de har genomfört de förbättringar som krävs av dem, enligt deras tidplan, om 6

månader.

Vi har också via vårt norska systerföretag i dagarna haft ett möte med IEH i Norge för att diskutera ett

eventuellt medlemskap. Refererar också till tidigare översända svar angående vår ”Leverantör 1”.

Osby 2009-11-27 / Ing-Marie Lavin (procurement manager)

Lekolar AB

Hallarydsvägen 8

Box 170, 283 23 Osby

Telefon: 0479 198 00

Telefax: 0479 199 99

Internet: www.lekolar.se

Email: kundtjanst@lekolar.se

Bankgiro: 5720-0792

Postgiro: 1111633-2

Orgnr: 556605-0646