Disney case highlights China supply chain pitfalls

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Shenzhen, China, Feb 12: In his dim two-room flat, Huang Renzhong showed a visitor a Mickey Mouse statuette and explained how creating Disney figurines during 15-hour work days in a grim factory led to a $90,000 lawsuit.

The circumstances surrounding the case Huang filed with four colleagues last year suggest that firms such as the Walt Disney Co that outsource production to licensees are more exposed to poor labour practices than companies with more direct control over their supply chains, despite concerted efforts to stamp out labour violations. Conditions in the factory where Huang worked in Shenzhen, a boomtown across the border from Hong Kong, were tough, and for years Disney did not even know its branded products were being made there. Huang said about 80 % of his work was Disney-related.

Workers were threatened with the sack if they paused, even to help someone who'd fainted, Huang said. They had no insurance, slept 12 to a dorm room, and were charged for room and board. During five years at Haowei Toys, Huang often worked from 8 a.m. until 11 p.m., or later, with breaks. "We worked extremely long hours, but the amount they paid us was too little," said, Huang, 39, puffing on a cigarette.

Huang and four other craftsmen decided to act after hearing media reports of workers who had won back-pay cases.

In February 2007, they quit Haowei and, after fruitless talks with the boss, sued the district labour bureau claiming it had failed to help recover what they calculated to be about 650,000 yuan ($90,310) in unpaid overtime. Haowei has said it owed them nothing, and the labour bureau says it did all that it legally could to help them.

They launched their case after one of the workers found contact details on the Internet for a Hong Kong NGO that monitors labour violations in China. They also called a newspaper, the Legal Daily, which wrote about them.

Cases like Haowei - and recent product safety scandals and toy recalls - underscore challenges multinationals face as they struggle to control their supply chains in a country where law enforcement is spotty, the labour pool is vast and fickle, and wages and raw material costs are rising sharply. Disney said it did not learn about the latest problems at Haowei until May. It wasn't the first time the No. 3 US entertainment company had heard such allegations: like many high-profile firms, Disney has been dogged by anti-sweatshop crusaders for years. Since 1996, it has set guidelines and monitored working conditions and schedules, pay and benefits, environmental and safety rules, non-discrimination and group bargaining rights.

Over the past decade, the company has performed countless audits and has collected data on 40,000 factories around the world to track potentially systemic problems and to eliminate troublesome facilities from its supply chain.

Affiliates get "three strikes" to comply before Disney revokes approval to produce its merchandise. "We remove authorisation on a regular basis because we take this seriously," said Mark Spears, Disney's director of international labour standards. But while the tough audit regimes upon which many Western companies base their compliance efforts may look good on paper, experts say they don't solve the core problems.