Australian Brands' Use Of Cheap Overseas Labour Has Investors Worried

Australian retailers are understating the risks of using cheap overseas suppliers, with only about a third of companies operating under suitable labour and human rights policies, super funds have warned.

The Australian Council of Superannuation Investors looked at 34 food and beverage brands, manufacturers, retailers and service providers in the ASX200 and found them relying increasingly on Least Developed Countries (LDCs) such as Bangladesh and Cambodia for goods.

China still dominates Australia’s import volumes but the ACSI found that companies have looked increasingly to LDCs since 2009, as Chinese wages grew.

Australia imported $300 million worth of goods from Bangladesh and $1.11 billion from Vietnam in 2012.

The List: Here Are The 16 Countries That Have Investors Worried

The ACSI warned that LDCs had higher rates of child labour, forced labour, health and safety issues, poor wages and working conditions.

In Bangladesh, for example, the garment industry has grown faster than infrastructure development, so some manufacturers work out of residential buildings that lack fire exits and suitable electrical infrastructure.

More than 1100 workers died when the eight-storey Rana Plaza building in Bangladesh collapsed in late April. Workers in the building made garments for European high-street retailers.

According to the ACSI, only 38% of Australian companies studied had a publicly disclosed labour and human rights policy for their suppliers and only 30% disclosed specific child labour and forced labour policies.

The council said Australian firms faced reputational, operational and legal risks when using suppliers that used cheap overseas labour, highlighting brand damage to Nike, Apple and Sherrin in the past decade as examples.

“The significant expenditures made by … companies on brand advertising and public relations indicate the relevance of brand and reputation to enterprise value. These assets may be vulnerable to increased customer awareness of [labour and human rights] issues.

Serious incidents can result in worker unrest or shutdowns and disrupt security of supply, and poor working conditions or worker disengagement can affect product quality.

Some labour rights and human rights are protected under law … regulatory shifts aimed at harmonising trade conditions could see the expansion of ‘extra territorial’ regulation as has been evident in other areas of transnational regulation,” ACSI reported.

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