L.A. Samy is the director of AREDS (Association of Rural Education and Development Service) in the Tamil Nadu state of India. M. Vijayabaskar is Assistant Professor at MIDS (Madras Institute of Development Studies), Chennai, India. Footnotes and References appear in a new browser.
Objectives of the Study
IKEA is a global leader in the home furnishing industry. Like most transnational corporations, the firm sources its supplies from numerous suppliers spread over several countries. The study seeks to understand the role-played by ethical buying initiatives of IKEA in the production practices of suppliers of handloom home furnishings in the south Indian town of Karur and the impact on workers lives.
Context of the Study
A key feature of the recent global capitalist expansion has been a tremendous increase in the reach of transnational corporations with regard to their ability to access input and output markets. Enabled by the diffusion of information and communication technologies, firms seek to disperse production processes worldwide to take advantage of factor costs. Different regions, especially in low-income countries, come to be integrated into the global production and distribution networks in specific ways. A common thread that, however, binds these production nodes is their ability to supply labour at extremely low cost, especially in comparison to labour costs in the advanced capitalist countries. This trend also implies a global division of labour wherein low-income countries specialize in labour intensive activities leaving capital, technology and design intensive production processes in high-income regions. We witness the rise of global commodity chains that link producers in various nodes all over the world to a single or few dominant firms that control the prospects of these several firms. The dominant firms exercise control over the firms in the periphery by virtue of their control over either technology or more importantly over markets through branding, fashion creation, and intense product differentiation.
While this division does perpetuate inequities, it has led to fears of job losses in some sectors in the advanced capitalist countries (ACC). As one would imagine, these sectors are essentially labour intensive ones that do not require high-end skills like the garments and textiles sector. Just as protectionist groups within these countries have sought to resist such offshoring of jobs, simultaneously other social movements within and outside the recipient countries have sought to highlight the harsh working conditions under which these firms operate and the negative environmental impact in the latter countries. Studies point out the various ways in which firms take advantage of legal laxities to perpetuate such conditions. An outcome of these trends is the rise of ethical buying initiatives in the ACCs that attempts to tackle such issues through changes in consumption practices. Moves include ban on purchase of products that use child or bonded labour, products whose production degrades the environment, etc. Driven partly by such ethical consumerism and in part by groups trying to prevent loss of jobs in the advanced capitalist countries, a number of global buyers (read USA and European) have sought to implement codes of conduct aimed at improving the working conditions in the supplier firms.
Key Features of IKEA and its Sourcing Initiatives
As is well known, IKEA is a global leader in home furnishing and orchestrates a large number of suppliers of both furniture and furnishings like bed linen, curtains, tablecloth, etc. across the world. A Swedish firm, at present, it sources from over 1600 suppliers spread over 55 countries, and employs directly and indirectly over 76,000 workers. It is a dominant firm in the home furnishing commodity chain and exerts considerable influence on the extent and patterns of surplus generation and distribution across the various nodes that it helps link up. The firm, however, also claims to pursue a social welfarist trajectory that ensures the well-being of its employees, suppliers, and the environment as well.
Started as a family enterprise, a key concept behind IKEAs organizational moves is its attempt to provide well-designed, functional home furnishing products at affordable prices. This concept is held to influence the sourcing, production, and distribution methods adopted by IKEA across its supply networks. Also, as Konzelmann et al. point out, the firm is driven not merely by profit maximization but also by a desire to improve the quality of life of the various agents involved in these networks (2005). To quote them, According to Kampard, his goal is to create a better everyday life for the majority of people.
We know that in the future we may make a valuable contribution to the democratization process at home and abroad. (Ibid) So much so that to ensure such standards after his life time, he has decided to protect IKEA by registering it as a foundation.
To provide quality products at relatively lower prices, IKEA follows the principle of establishing long-term and trust-based relationships with its suppliers that enables it to work closely with them to establish work process standards and provide technical assistance to enhance productivity and product quality. Innovations in distribution networks also enhance chain level efficiency. IKEA has strategically established 27 distribution centres in 16 countries to ensure that the route from supplier to customer is as direct, cost-effective, and environmentally-friendly as possible. IKEA also economises by locating stores in less expensive sites within their market area and expecting customers to pick-up merchandise from the warehouse, transport it to their homes and assemble it themselves.
Another route taken by IKEA to cut costs, and one which fits in quite well with the global trend is its move into low cost locations. It has increased its sourcing from developing countries from 32 to 48 per cent over the past five years. 29 percent of the production of IKEA comes from Asia, 67 percent from Europe with 15 percent from Eastern Europe, and 4 percent from the US. While China and Sweden appear to be most favoured sourcing destinations (14 percent each), (1) Poland, which used to be the biggest source earlier, has moved to the third place (8 percent), followed by Germany and Italy accounting for six per cent each. In 2004, IKEA reported sales revenues of 13.6 billion Euros ($16.8 billion) (IKEA Annual report 2005). By June 2005, it had outlets in 33 countries with Germany accounting for the largest market (20 per cent), followed by UK (12 per cent), the US (11 per cent), France (9 per cent) and Sweden (8 per cent). (2)
Recent sourcing trends include increased sourcing from suppliers in India, Bangladesh, Pakistan and Sri Lanka, apart from China and Russia. While this trend appears to go against the IKEA norms of establishing long-term relationships with suppliers, it also has moves to cut down the number of suppliers and focus on them. To be sure, this move is not unique to IKEA, and is part of a global trend to reduce transaction costs by transacting with fewer suppliers. These suppliers may however rely on a larger number of subcontractors.
As part of its ethical buying initiative started due to pressure from trade union and other groups, IKEA established IWAY (The IKEA Way on Purchasing Home Furnishing Products) in 1998 to ensure that high social and environmental standards would be maintained throughout the company as well as within those entities with which IKEA has business relations. The IWAY is a code of conduct for IKEAs suppliers approved by the board of IKEA. It is based on the 8 core conventions defined in the fundamental Principles of Rights at Work of the ILO Declaration 1998 and the Rio Declaration on Sustainable Development 1992. IWAY seeks to enforce certain common minimum standards in the areas of labour and employment, and environment. These include: issues of worker safety; a ban on use of child labour and discrimination; the provision of basic amenities in the workplace like drinking water, toilets and dining space, adherence to legally mandated obligations like social and employment security benefits; restrictions the number of hours that workers can work in a week; placing minimum standards of wage payment; and the permitting of freedom of association. On the environmental front, since IKEA specializes in wooden home furnishing, it stipulates that the sourcing of wood should not be from intact natural forests or high conservation value forests. Suppliers delivering IKEA products containing solid wood, veneer, and other kinds of wood must maintain a Forest Tracing System document that will allow the tracing of source of wood whenever required.
These are the key components of IWAY (Annexe 1 in de Haan. E and J Oldenziel, (2003),
- provide a healthy and safe working environment
- pay the legal minimum wage or the local industry standard
- and compensate for overtime
- if housing facilities are provided, ensure reasonable privacy
- quietness and personal hygiene
Suppliers must not:
- make use of child labour
- make use of forced or bonded labour
- use illegal overtime
- prevent workers from associating freely with any worker's association or group of their choosing or collective bargaining
- accept any form of mental or physical disciplinary action including harassment
On the environmental protection front,
- work to reduce waste and emissions to air, ground and water
- handle chemicals in an environmentally safe way, handle, store and dispose of hazardous waste in an environmentally safe manner
- contribute to the recycling and reuse of materials and used products
- use wood from known areas and, if possible, from sources that are well managed and preferably independently certified as such.
Suppliers must not:
- use or exceed the use of substances forbidden or restricted in the IKEA list of "Chemical Compounds and Substances",
- use wood originating from natural parks, nature reserves, intact natural forests or any areas with officially declared high conservation values, unless certified.
It also appears that IKEA takes serious effort to maintain adherence to the IWAY code of conduct among its suppliers through frequent audits. Since IKEA´s code of conduct was introduced in the year 2000, the firm claims to have terminated the services of a total of 354 suppliers. Of these 21 (6 percent) were terminated primarily because of non-adherence to IWAY and another 38 (11 percent) terminated partly because of the same. During the financial year 2003, according to IKEA documents, 162 contracts have been terminated, of which 14 (9 percent) were terminated primarily due to IWAY and 22 (14 percent) partly the same reason (de Haan. E and J Oldenziel, (2003). Since the introduction of the code of conduct, the Compliance and Monitoring Group have performed a total of 180 audits: 112 in Asia and 68 in Europe.
Konzelmann et al. (2005) thus argues that IKEA has managed to export the high quality of supplier and employer-employee relationships to its suppliers in the low income regions despite the severe cost-based competition it faces from other corporations like Walmart. This, she attributes to the nation-specific character of production systems in which are embedded a set of values that condition the pattern of growth of capitalism in these countries.
IKEA in south Asia
We already noted the overall trajectory of IKEA expanding its supplier base to other low income regions. South Asia figures prominently in this move. IKEA has plans to increase its purchasing investment in the region to US $350 million (de Haan. E and J Oldenziel, 2003). The major products that it sources from this region are home textiles like rugs and carpets, handloom textiles and upholstery, metal, and some leather products. In fact, half of the carpets sold by IKEA are manufactured in India. The company currently has 135 suppliers in the South Asian region. While its sourcing operations in north India have been studied, it also sources large quantities of handloom textiles from Karur, an important cluster for power loom and handloom fabric in Tamil Nadu, south India. It is said that almost 25 per cent of the output of the handloom sector in Karur (in Tamil Nadu) is exported by the firm. (3) IKEA has five to six suppliers from the town. This study focuses on the nature of implementation of IWAY and its impact on the working and living conditions of workers in these supplier firms. Given the predominance of the informal economy in these regions, especially in the textile and clothing sector and hence not subject to any kind of state regulation, it would be quite useful to understand the extent to which such buying initiatives impact employment and living conditions.
Objectives of the Study
- Highlight differences between what IKEA purports to achieve through its code of conduct (IWAY standard) and the reality of the working conditions in four factories in Karur producing textile products for IKEA.
- Verify whether it is possible to implement the IWAY standard with the buying practices of IKEA
- Study concrete factors linked to the working conditions of the workers producing IKEAs products in 4 factories in Karur
- Study concrete facts of the living conditions of the workers producing IKEAs product in Karur
- Study facts about the impact on the environment of the production of IKEAs product to Karur
- To understand the buying practices of IKEA through the chain so as to understand the price structure and its decomposition
To get an idea about the working and environmental conditions specific to IKEA supplier firms, it is essential to understand the prevailing or dominant set of practices in the region and in the sector. Through a set of interviews with both workers, entrepreneurs and other key informants, we sought to obtain a picture of the standard mode of organizing production and labour in the region. In almost all the interviews, the respondents felt that the conditions in IKEA supplier firms are quite different. Next, we interviewed key persons at the managerial level in three of the factories that supply to IKEA. The respondent in the fourth firm said that they were extremely busy and that they would not be able to grant us an interview during the course of our fieldwork. In the three of the supplier firms, we sought information on the changes that they have introduced as a result of IWAY and their perceptions of their relationship with their buyer. Focus was placed on working conditions and efforts on curbing environmental damage due to effluent discharge from the dyeing processes. It must be stated that these firms do not cater solely to IKEA though it is their major buyer.
Carrying out interviews with workers was not easy. We did not seek permission from the managers of the firms we studied as our past field experience in other parts of Tamil Nadu made us realize that it was not a viable strategy. Even when permission is obtained, workers are not particularly inclined to interact especially when they are paid on a piece rate basis. Time spent on answering our queries implies loss of income that could be earned in that period. So initially, we tried to identify the possible villages from which workers go to work in powerloom and made-ups factories (called Tex Companies in local parlance). Since AREDS works intimately on various social development programmes in the region, it could be done within a reasonable amount of time. Within these villages, workers who work in the supplier firms were then identified. This task took us a much longer time. Once we had a list of workers employed in these firms spread across a few villages, we tried to conduct interviews in their households. Our initial effort to interview them in the morning hours before they left to work was not useful as they just had time to take care of their household tasks, and get ready to leave for work. Even when we tried to do it after they came back from work, it was not easy. The earliest they could come back was around 9.00 in the evening after which they had to have dinner. Finally we conducted interviews in two ways. One, we visited the households on Sundays, the only day when they didnt have to go to work. Then, we also did a few interviews when they were on their way back from work. A number of them take trains back from Karur to their villages and we conducted interviews during that period.
In addition, we rely on secondary literature to understand the changing dynamic of the sector in the region and the nature of government intervention. The rest of the report is organized as follows. First, we outline the nature of the production process involved in the made-ups sector in Karur. This description is accompanied by an account of the dominant way in which these various processes are organized. Then we move onto an examination of the working conditions in IKEAs supplier firms. Next, we follow it up with a section on the living conditions of the workers. The description is set against the norms set by IKEA and the extent of departure from these norms. We also seek to locate these findings against the observations made in the study on textile factories in Panipat and Jaipur, Rajasthan. In the final section, we summarise the major findings with a view to derive implications for sourcing strategies and for the growth of the sector and quality employment in the region.
The Indian Textile and Clothing Industry
The textile and apparel industry in India together employs nearly 38 million people, accounts for 14 percent of industrial production, about 4 percent of GDP and 37 percent of Indias gross export earnings. The Indian textile industry is one of the largest in the world with a massive raw material and textiles manufacturing base. There are certain unique features that mark this sector in India. It is an extremely decentralized sector with multiple tiers that are strongly connected to each other. Reservation of the some of the segments for the small scale sector by the government has been one of the factors contributing to the rise of such a sector. Though subcontracting is a fairly common practice in the clothing sector globally, the extent in India at over 65 percent is twice that of the global average. This structural feature, while denying the advantages of scale economies definitely gives it an edge in terms of scope economies. The Indian sector is primarily known for its long tradition of handloom weaving on the one hand and an ability to produce smaller lots requiring a variety of patterns and designs.
The powerlooms and handlooms together account for the production of 76 percent of the fabric requirements. The handloom sector has, however, been in constant threat, especially with the rise of the powerloom sector in recent decades. The powerloom has also outpriced the fabric from the composite mills due to its ability to operate in the informal economy, drawing upon cheap labour and subjecting them to intense work conditions. As a result, over the last 20 yeaes or so, we witness a steady decline in the share of mill made and handloom fabric, which has had implications for labour as well. This phenomenon is especially acute in the case of Tamil Nadu. Once, one of the biggest centers of handloom weaving in the country, at present, it is also home to an extremely vibrant powerloom sector in the country. The state ranks third only after Maharashtra and Gujarat as regards the number of textile manufacturing units in the organised and decentralised sectors of the textile industry.
The powerloom industry in Tamil Nadu provides direct and indirect employment to over 7 lakh (700,000) workers (http://texmin.nic.in/tnpl_chap1.pdf). At present, it is estimated that there are 4,37,325 looms in this sector. In Tamil Nadu, though it is widespread, it is also marked by fairly high degree of product specialization across different regions/clusters. The powerlooms in Tamil Nadu are mainly concentrated in the three districts of Salem, Erode, Namakkal and Coimbatore, a region traditionally referred to as Kongunadu, accounting together for 83 percent of the looms (http://texmin.nic.in/tnpl_chap1.pdf). Karur is part of this region and is one of the major centers of both handloom and powerloom fabric production. Corsi, for instance, hazards the following estimate for Karur; 20,000 handlooms and a similar number of powerlooms and handlooms, and about 3 lakh (300,000) people who depend directly or indirectly on this sector for their survival (2003, 4113). In the Karur belt, the sectors main products are bedsheets, tablecloth, curtains, napkins and towels. In other areas, they may be carpets, grey fabrics, shirting, etc. IKEA has been sourcing handloom textiles for over 10 years. At present, from the information that we could gather, they source from five main suppliers. Before we move on to discuss the nature of employment and working conditions, we briefly outline the production processes involved in the production of key export products from Karur.
The first step is of course the production of yarn. This is mainly undertaken in large spinning mills. The mills are spread over the entire region and by and large the suppliers source from a standard set of mills for their production. The next step can be either dyeing of yarn or conversion of yarn into fabric. Yarn dyeing requires sophisticated machinery and at least two IKEA suppliers have in-house facilities for this purpose. This is however a recent addition and, until then, dyeing was mostly outsourced to separate factories. Dyeing factories are mostly located on the outskirts of Karur town as it has to provide space for letting out effluents. While modern dyeing does not require much labour, traditional dyeing in open vats require labour for mixing, drying, etc. in addition to dyeing supervisors and dyeing masters. The latter are responsible for getting the accurate colours through the right mix of colours and the latter set are responsible for ensuring that the production process is uniform across lots.
Conversion of yarn to fabric can be done on either handlooms or on powerlooms. IKEA suppliers are required to use only handloom fabric and hence, they rely on a large number of suppliers. None of them have their inhouse handloom production. But they have a number of powerlooms including autolooms that takes much less time to produce cloth compared to the traditional powerloom. Use of autolooms also reduces the need for labour for any given quantity of fabric. Handloom production has a long history of state support and regulation. Since the colonial times, a number of efforts have been undertaken to protect the sector from competition from modern mills. The state has continued such efforts by both enabling them to use better techniques to diversify the product base and also to market their products. There are also numerous weavers cooperatives spread across different centres of handloom production. Apart from them, handloom weavers are organised by master weavers who exercise enormous control over the jobworkers through provision of raw material, a system of cash advances. and greater access to product markets. A number of studies have pointed out the unequal relations of power between them and the consequent hardships for the weavers. Among the suppliers studied, one firm claimed to source only from weaver cooperative societies, whereas the other two said that they source from both cooperatives and master weavers. The raw material, i.e, yarn is given to them and are paid conversion charges. IKEA suppliers have quality controllers who periodically visit these firms to ensure quality.
Fabric is invariably outsourced and so the labouring conditions in the fabric-making firms are not controlled by the code of conduct of IKEA. Also, since it is quite widespread, it is difficult to exercise the kind of control envisaged by IKEA through IWAY. Dyeing of fabric, of late, has moved into the premises of the suppliers. This has been done primarily at the insistence of IKEA as IWAY requires control on pollution norms as well. This movement is also accompanied by installation of effluent treatment plants and in at least a couple of cases, salt recovery plants as well. Additional processing facilities that have been set up include shrinkage control. There are also in-house laboratories for mixing of dyes, and testing.
The next important job once the dyed fabric comes to the making-up section is checking for faults. This is done quite intensely as quality is critical to the export market, especially in the case of reputed buyers like IKEA. After quality check, the fabric is taken for cutting as per the order design and size. This is followed by stitching and packing. Stitching, again, used to be outsourced in the early phases, but has now been brought inhouse. Having described the various stages in the production process, we now move to understanding the patterns of labour use and the extent to which codes of conduct are adhered to by the suppliers. In so doing, we also contrast the experience of employment and work in the IKEA supplier firms with that of other suppliers. Such an exercise, we hope, will help us understand the effectiveness of the code of conduct insisted by IKEA better. However, when we discuss the working conditions, we discuss conditions only within the supplier firms and not in the cooperative societies or master weavers workshops from where IKEA sources its fabric.
There is a general perception in the town that IKEA is very strict about codes of conduct and that the supplier firms are different. Appraently, unlike other buyers, IKEA audits are often unannounced which forces firms to confirm to requirements continuously. These firms, with their size, and organized front, present a different picture compared to the numerous other medium and small firms that dot the landscape of Karur. There are a few other big firms as well, especially a couple supplying to Walmart, but key informants feel that no other buyer is as insistent as IKEA as far as work and environmental norms are concerned. As one enters these firms, various points about employment, health and safety are prominently displayed on notice boards. In one of the firms where we were allowed a glimpse of the interiors of the various sections, similar tips for safety and even statements about gender equality are put up.
Mode of Employment
As far as IKEA suppliers are concerned, the employment relationship within the supplier firms are freely chosen by the employees. This freedom, in literature on labour markets, is generally put forth against a context of prevalence of bonded labour. Labour under conditions of bondage, are tied to the employer through link-up with other markets like credit markets. The labourer is therefore forced to work for the employer for extended periods of time, despite her wishes for free employment elsewhere. While such conditions of bondage are less prevalent, especially in Tamil Nadu, labourers are sourced in most ports of the urban informal economy through labour contractors. These contractors mediate between the employer and the employee and in a number of instances offer advances (credit) to the workers to ensure their labour supply when demand peaks. Bremen, for instance, refers to the rise of such forms of neo-bondage in some parts of India during its current phase of integration with the global market. In Karur, for jobs like checking, stitching and packing, the dominant form of recruitment is through labour contractors. There are contractors for specific jobs like pasting stickers, polythene packing, etc. The latter would bring in teams of 30-40 or more workers as and when there is demand from a particular firm. Once the order is complete, they move to another firm.
Thus, there is very little permanent, direct employment in this sector in Karur. While respondents concede to the existence of such practices in the past even in the IKEA supplier firms, over the last two years, there has been a phasing out of this practice and employees are recruited directly. Earlier, IKEA suppliers too sourced labour through contractors and seldom employed personnel directly. A few respondents do cite that during peak demand season, some tailors even at present are brought in through labour contractors to get the orders stitched in time. In one of the firms, we did find workers being employed on a contract basis for tailors and checkers. This practice is definitely violative of the IKEAs code of conduct. The proportion of such contract labour is however much smaller compared to the prevalent proportion in the town.
Discrimination in employment
Though there is a slight division of labour between the kind of jobs that men and women undertake in the supplier firms, there is no difference in the wage levels based on gender differences. Women are predominantly employed in checking, and are slowly finding their way into stitching as well. Packing continues to be a preserve of male workers by and large. The reason cited is the need to carry heavy packs, seen as a tough manual task that are best undertaken by men. Men and women are paid the same level based on their work experience. Again, caste based discrimination too is absent in the workplace.
The industry does not have a history of employing child labour and so the supplier firms too do not employ them. It is possible to see adoloscent boys and girls employed in some of the other firms in Karur, but in the supplier firms that we visited, all of them do look like adult workers.
Freedom of Association and the right to collective bargaining
In all the supplier firms, the rules of the Tamil Nadu Factories Act, 1948, are prominently displayed in both English and Tamil. One of them talks about the freedom of association and right to collective bargaining in all the firms registered under the Act. Though IKEA does not inhibit workers from associating themselves through trade unions, there is no presence of trade unions either in the supplier firms or in other firms in the region. There are a couple of trade unions in the town, but none of the workers that we met had any links with them. They hardly seem to play a role in the working conditions in any of the firms in Karur.
Interestingly, the workers working in the IKEA supplier firms whom we spoke to felt that there was no need for trade unions as their requirements are met by the employer. Operating under conditions where informal and casual employment dominate, it appears that workers feel that they are in a privileged position compared to fellow workers in other firms
The wage rates prevailing in the IKEA supplier firms fulfill the legal requirements of the Factories Act which requires that workers be paid at least the minimum daily wages fixed by the state government from time to time. In fact, workers are exaclty paid the minimum wages presribed by the Act at the point of entry into the firm. Wage revisions are undertaken on a yearly basis and 10 per cent is added to the previous wage rate. There are clear differences in not only the magnitude, but also in the mode of wage payment. Generally, in Karur, tailors are paid on a piece-rate basis and, as stated earlier, work through labour contractors. Here, in the IKEA supplier firms, workers are direct employees and are made permanent after a year of probation. They are all paid on a monthly salary with per day wages calculated based on the minimum wages prescribed by the state government. There seem to be variations across firms in the rate of increase. Bonus is also given by all the firms to those who have completed one year of work in the firm.
The workers are eligible for provident fund and Employees State Insurance (ESI) benefits. Workers are given identity cards as soon as they join and the company maintains detailed accounts of the number of days worked, eligibility for social security, etc. When workers leave, they are paid all that they are entitled to. This again seems to be particular to IKEA firms as often we find workers stating that they preferred working for labour contractors because they can be assured by wages and bonus that they are entitled to. They feel that in many firms, if they are employed directly, it is not easy for them to demand their entitlements when they leave a firm. Often, according to them, firms do not comply with the contracts. But none of the workers in the IKEA supplier firms seem to have such trouble with their employers.
The income that workers earn do not constitute a living wage. As stated earlier, suppliers pay them only the minimum wages and this is much less than a living wage. For instance, a checker, which is most numerous of the occupations, is paid at a rate of Rs. 81 per shift, which means a monthly income of Rs. 2100.00. Though the amount is not too low, still according to respondents, quite insufficient to sustain a family especially when they need to stay on rented premises or have elderly dependents or children to be sent to school, etc. Most importantly, the salary is insufficient to undertake savings that can be used for contingencies like ill health, ceremonies, etc. Tailors and cutters too are paid on a similar basis, at a slightly higher rate (Rs. 84 per day). For instance, a cutter who has been working in one of the supplier firms for six years receives a salary of Rs. 2,800 per month. In one of the supplier firms, we interviewed a woman employee who is paid only Rs. 50 per day and is working on a contract basis in checking and packing.
Managers of a few firms felt that despite giving them such wages, the labour turnover is quite high. Interviews with other workers gives an indication of possible reasons. Given the sudden surge in demand for labour, labour market has become tight in the last few years with workers in a position to move from one firm to another quite easily. Since most of them are young, they prefer to work for piece-rate as this enables them to earn more in a given period of time. Also, when they are casual workers working for labour contractors, there is no deduction by the employer for social security purpose, which again boosts their short-term income. As a result, even such direct employment with social security benefits does not prove to be adequately attractive to the sections of labour. This is also because minimum wages are quite low compared to living wage rates and hence adequate for a family to sustain on a single income.
Hours of work
IKEA code of conduct prescribes hours of work and the maximum that a worker can perform in a week. This is one norm however that seems to be violated by almost all the supplier firms. We find many workers working one and a half shifts throughout the week which is more than the prescribed norm. In fact, when we went to interview a few workers from a village near Karur, we were told that they would return by only 11.00 in the night. And in one village, we had to wait for the weekend as the workers were working the whole night. The reasons for such overwork is not clear except that it happens mostly when delivery schedules are near and they have to be adhered to. Such intense working hours are not unique to IKEA suppliers and, in fact, it appears to be much less compared to other firms in Karur. Workers in three of the supplier firms studied are however paid double the normal wages for overtime work. In one firm, it seems that they are paid the same rate. This additional hours worked is not however included in calculation of social security benefits and workers are paid for extra time on the same day of work.
Conditions of work in the supplier firms are definitely better compared to other similar firms in Karur. There is a lot of emphasis placed on safety norms as well as on health and environmental standards. There is a separate dining area provided and all workers have access to safe drinking water. Toilets are well maintained. Masks are provided to workers working in sections where there is cotton dust. Gloves are provided for handling of chemicals, etc., and also goggles for protection of their eyes. Though there are no well laid out rules, employers claim to take care of some portion of hospital expenses in case of serious ailment among the workers. Transport facilities are however not provided and this does pose problems for workers coming from long distances to reach the factory. One supplier provides transport facilities from the centre of the town to the factory. Many of them live on the outskirts of Karur town and hence spend considerable time to reach the factories. After a years service, they are eligible for 2 weeks of earn leave in a year. In one firm employees had not heard of maternity leave, but in another factory, one of the employees said that she was given 3 months of maternity leave.
In Karur, the most important polluting element of the production process is discharge of effluents from dyeing factories. The factories are mostly located on the banks of the Amaravathi river making effluent discharge into the river quite easy. In the IKEA supplier firms, efforts at controlling pollution due to effluent discharge has been taken up seriously. To begin with, they have moved dyeing processes in house and have installed effluent treatment plants as well. Though it does add up to their costs, the suppliers feel that it can be compensated through salt recovery plants and more attention to material saving processes.
There are no transport or accomodation facilities provided by most of them. As stated earlier, one firm provides transport facilities from the main town bus station to the factory. Most stay on rented premises away from the town to keep rents low, but this forces them to commute long distances. We also find that the wages paid do not constitute a living wage and invariably at least two members of the household are employed in different jobs to meet their expenditure requirements. Health expenditure is a major issue for most workers and they felt that it would be really helpful if the firms can take care of such expenditure in a systematic manner.
Distribution of Costs along the Value Chain
We could not find out the difference between what IKEA pays its suppliers and the rate at which it is sold by IKEA to the final consumers. But if global practices in the clothing and textiles sector can be used as an indicator, the difference is at least 100 per cent even after taking into account the costs of transportation. In other words, the maximum margins realised is at the point of retailing. These margins do not appear to have suffered on account of implementation of such codes of conduct. All suppliers felt that while they have implemented practices that do add up to their costs of production, they have not been able to pass on their costs to the buyer. This, according to them, has definitely reduced their profit margins over time. Also, with such standards, it is difficult to compete with other firms, for other buyers as their cost structure is higher on account of maintaining better labour and environmental standards.
The study sought to understand the extent to which firms supplying handloom home furnishing to IKEA from Karur, south India, confirm to the IWAY standards set by IKEA for its suppliers. We find that firms by and large do confirm to the standards set by IKEA for its suppliers. The only two areas where there is are violations concerns working overtime and continued relaince on outsourcing in at least one supplier firm to acquire labour. While there has been considerable reduction over time in relying on contract labour, it has not completely been eliminated. Sourcing of fabric is also highly decentralised and spread across several towns and so it is difficult to follow up on implementation of IKEA norms in these weaving units.
Also, since IKEA insists only on the legal minimum standards, the wage rates paid by the firms, though confirming to IKEAs standards, do not constitute a living wage. IKEA however, has definitely changed the landscape of textile production in the town with its comparatively strong thrust on implementation of norms. These norms are essentially the standards set by the local state which are largely flouted by other firms. To that extent, codes of conduct do serve to improve the working conditions of labour and the environment. But the extent to which such supplier firms can continue to be competitive in the global market when faced with competition from firms with lower standards is not clear. Firms that we studied do talk about competition from China and other low income countries where firms use much more exploitative practices and hence are able to offer products at lower prices. This issue becomes especially important when we take into account the fact that suppliers are not able to pass on the increased costs on account of standard implementation to the buyers. Sustainability of such practices also would require support from the buyers not only towards sharing of costs of implementation of standards, but importantly, in helping suppliers move into more value-adding segments like designing.
Published in In Motion Magazine October 8, 2006