Have you ever wondered how your toys, those you played with as a child, were made? Or where the toys which you buy now for the children in your life come from? This post is the first part of a brief answer. We take the the case of Chinese toy production and its German customers and focus on the fair distribution of value and workers’ rights in this global supply chain.
This mini-series of two posts is a by-product of my participation in the Massive Open Online Course Decent Work in Global Supply Chains offered for free by the Global Labour University and Penn State University. Part of this excellent learning experience was writing a 1,000 word paper on the fair distribution of value and workers’ rights in a global supply chain linked to the students’ home country. I chose to study the global supply chain of toys with my home country, Germany, as target market.
What Are Toys?
Since we focus on toys sold in Germany, I took the toy definition of the European Union:
Interestingly, the Euroepan Union (EU) excludes puzzles, video games and toys on public spaces from its definition. We can better understand the global picture of the toy supply chain, if we look at the different components of toys. Plastic is the main component, usually taking up to 25 percent of a toy.
I was surprised to learn that teddy bears are made of the same primary material like plastic action figures: crude oil. Crude oil is also used to make plush that is the cuddly thing which is the main attraction feature of the internationally beloved plush toy family. Germany is second in the EU in importing plush toys, only succeeded by the UK. Considering that human rights violations and abuses remain a massive issue in oil production, the average cuddly teddy bear does seem to have more than one dark secret to hide in its supply chain.
Almost equally important for toy production is the material wood. This particularly applies in Germany, number 1 market for wooden toys. Customers are more inclined to open their wallets if a toy looks as if it could teach some useful skill to the child, and has some aura of “traditional” i.e. looks as if our grandparents could have already played with it. Trees are not growing as fast as the wood toy production in Yunhe, Zhejiang province require it, where most wooden toys are produced. Therefore, wood is imported to China from Russia, Finland, Malaysia and Australia. It seems laudable that many companies focus on buying FSC-certified wood in their supply chains. Nevertheless, there is some hard evidence that this kind of certification for wood materials has currently some major flaws. For example, there is the conflict of interest arising from the fact that the companies which want to be certified are also the ones to pay the certifiers. For this post, we will focus on the Business and Human Rights issues arising from plastic toys produced in Chinese companies to the German market.
The German Toy Market
The German market for toys is one of the five largest markets to sell toys in Europe. Four of the biggest transnational corporations – Mattel, Hasbro, Lego and Playmobil – own half of the German market. They produce abroad: every second toy sold in Germany was produced in China where more than 75 percent of all toys are created from their different separate pieces. Therefore, I decided to look at China in order to analyse whether value is distributed in a fair manner in this supply chain and whether workers’ rights are respected.
Chinese Toy Production
Assuming that you, dear readers, are mostly from Western Europe, I need to clarify: When we speak about China, we do not speak about a country like France or Poland. We speak about a country which has the size of a continent with 4.381.324 km² where 1,388 billion people live. There are 506 million citizens living on the 4.381.324 km² of the European Union.
Toy production in China takes place in several regions, dominantly in Guangdong province in the Pearl River Delta (South on the map). Workers’ tasks in the toy production there are similar to the processes in textile and IT production: production is split up in many small parts so that each worker conducts one tiny process, e.g. sewing the one specific seam which puts the ears to a teddy bear’s head. This specific manual task can be done by unskilled workers who do not need to be trained. This approach is very beneficial for companies looking for low labour costs, but translates into little leverage for workers: they can easily be replaced.
Do you think that if you pay more for a high street brand toy, you can be certain that working conditions there are better than in those factories where cheap toys are produced?
Unfortunately, the price tag you see has no connection to the working conditions in China: some expensive toys are produced in the same factory as cheap toys. In general, working conditions vary from each single factory. Some companies have their own factories, others mandate several different suppliers. It is estimated that there are more than 5,000, maybe even 10,000 toy producing manufacturing companies in China. These thousands of companies depend on a small group of brands which sell toys internationally.
In the past ten years, the number of toy companies selling on Western markets has dwindled with financial service providers and multinational companies acquiring toy companies. In Germany, Mattel, Hasbro, Lego and Playmobil are the biggest players. As businesses, they seek to make profits.
How are profits generated (if not maximised) in the toy industry?
In this supply chain, the four multinational companies have the power: they decide what toys are produced, how much it may cost – and who gets the job to make the toys. They do not seem to care about the details of the actual production. The international manufacturing and selling of toys is a typical buyer-driven labour-intensive supply chain.
Global toy brands do not produce the toys they sell in their own companies. Instead, they buy from their suppliers, e.g. small Chinese manufacturers where workers do the labour-intensive production. Low labour costs were the reason why Western companies moved their production to China at the beginning of the 1990s. Since then, many factors have changed: technological innovations, such as electronic toys, continue to lead to constant structural changes in the supply chain. Equally important are the rising incomes and wages in China. Side note: I am not claiming that today toy workers are earning decent wages in China. I am pointing out that due to an increase in living and other costs in China, wages have also increased.
One may even argue that this relative raise in Chinese wages has had a greater impact on the structure of the global toy supply chain than technological innovations. Wages i.e. labour costs are the only flexible item in contracts in the toy industry. Other items such as on product quality and product safety are non-negotiable if you want to sell brand toys on the German market.
For profit-driven transnational companies rising costs are a call for re-location: they consider shifting production to even cheaper countries such as India. This may lead to closures of sites in China leaving workers without any income and resulting political pressures according to the Hongkong-based not-for-profit company China Labour Bulletin.
This power-asymmetry has also led to another significant trend: ever shorter product cycles.Have you noticed that half of all toys stay only for two years in the market?
In summer, multinational companies give out the orders for the Christmas season to Chinese manufacturers. Unfortunately, buyers are continuously demanding ever shorter production cycles with just-in-time delivery. This gives greater leverage to the companies selling toys in Germany to ascertain potential trends in the upcoming Christmas sales. For tChinese workers, this short notice regularly translates into excessive overtime where workers experience work-related accidents due to exhaustion and fatigue.
Distribution of Value
Toy production is organised in an international chain of transactions to save costs, and thus increase profits – but which player gets what in this game?
The small number of big players in the toy industry marks how the value added to a toy along its supply chain is distributed between key actors, including the home state Germany and the host state China.
Tax income for Germany may not be too great since these corporations structure themselves in different countries to benefit from low taxation, e.g. Mattel’s case according to Citizens for Tax Justice. There is no corporate tax income from these corporations for the Chinese state since they only buy from Chinese companies. The injustice in the supply chain is greatly increased if we look at the weakest members: workers.
No Game: Working Conditions in Toy Factories
The Non-Governmental Organisation China Labour Watch has reported in 2015:
“At Mattel’s Shenzhen-based supplier plant Winson, if a worker does 110 hours of overtime a month, working on 40,320 toys, she will earn $0.016 per toy. The classic Mattel toy brand Rock ‘Em Sock ‘Em, which was being produced at Winson during this investigation, retailed on Amazon at $30 in October 2015. This means that each Winson worker earns only 0.05% the market value of the Rock ‘Em Sock ‘Em toy. Workers produce nonstop. Young workers sacrifice their youth and health, and working parents often only have a chance to see their families and children once a year. Despite such sacrifice, a worker earns only 1/2000 the value of a toy she produces.”
This highlights one of the key workers’ rights violation and abuse in the toy supply chain: extremely low basic wages which remain independently from the final product price. For Western consumers this means that even if you are willing to dig deeper in your pocket, there is little likelihood that your money reaches those who contributed most to your product.
This quote from China Labour Watch also points out several other human rights issues for Chinese workers:
#1 Excessive Overtime
Chinese labour law stipulates in Article 36 that workers should not work more than eight hours a day and 44 hours a week on average. That is 176 hours a month. Can you ascertain how many hours a worker in a Chinese toy factors is at work if s/he is also working 110 hours overtime a month? 286 hours! Now, imagine yourself working 286 hours a month… and you see why banning excessive overtime is an essential human right.
#2 Risks to Health
Unsurprisingly, even in the safest working environment work-related accidents increase if workers are overtired. If you dig deeper into the wealth of information accessible online (see further information below), you will easily discover that health and safety for workers are often disregarded.
#3 Minimal Family Life
Remember that I stressed China is more like a continent with millions of people than any Western-style country? Its population is also organised in a different way: the hukou system. In a nutshell, this household registration system says that wherever you are born, you also have access to education and health care. If you happen to be born in the middle of nowhere and need to move to find work, tough luck if you end up in a city and need medical care or your children would like to go to school. Therefore, most parents who must move to the urban areas where there is work leave their children behind (so-called Left Behind Children). Once a year, for the most important holiday – Chinese New Year – a gigantic wave of migration takes place. That is when migrant workers can return home to visit their children.
“[…] some 260 million Chinese migrants — about 20 percent of China’s total population — live as second-class citizens in their adopted cities. In them, but not of them.” Public Radio International
Side note: Much has been written about how this hukou system has allowed setting low wages for officially illegal migrant workers. The system is not only disputed, but also modified and adapted to local contexts. Briefly, if you read further using online sources, always verify when the information was created and bear in mind that it may not be representative for the whole country.
Skewed Rules: No Right to Form Unions
There is one human right which when properly fulfilled is a major driver to improve the three workers’ rights mentioned above: the right to form and join a trade union. Have you noticed how the quotation on Rock ‘Em Sock ‘Em did not mention this?
In China, there is only one official union: the All-China Federation of Trade Unions (ACFTU).
“The ACFTU is primarily under the control and direction of the Chinese Communist Party. Any attempt to establish an independent trade union movement is seen by the Party as political threat.” China Labour Bulletin
Many Westerners do not appreciate the importance of unions claiming that they did not have any impact on their own lives. They are often unaware of the hard battles which continue being fought over the high standard of living many people enjoy in places like Europe. There is a widespread illusion that social benefits like health care, pensions and environmental regulation would exist independently of unions, and other forms to organise public interests.
Allowing workers to organise themselves and negotiate as a group with the company is the first step to put an end to excessive overtime, delayed or stolen wages and social benefits and health hazards. Therefore, it is a huge issue that in China the official union regularly aligns with the interests of management.
If we look at the massive competition among the many Chinese toy manufacturers and the small group of buyers, it comes to no surprise that it sucks to be a Chinese toy worker (though “sucks” feels like a bit of an understatement).
Summing Up: Unfair Play
Speaking in human rights language: the Chinese state is continuously violating all Fundamental Principles and Rights at Work in the respective Declaration of the International Labor Organisation (ILO) as well as health and safety requirements, e.g. those in ILO Convention 155, and the minimum wage of workers, ILO Convention 138.
© ZDFzoom: Schöne Bescherung Spielzeug aus China. German documentary on Chinese toys produced for the German market from 9 December 2015.
The low basic wages – China currently violates ILO convention 26 and Art. 7 International Convention on Economic Social and Cultural Rights – require workers to agree with excessive working hours which are often not remunerated with higher over-time wages – a clear violation of Chinese labour law Articles 41, 42 and 43 and an infringement upon the ILO Declaration forbidding all forms of forced labour. The ILO Declaration is also infringed upon by the state’s opposition to effective workers’ representation despite workers risking their lives for decent work (cf. media reporting on state forces violent reaction to protests).
How can we change this situation? Who are the three key actors whose particular role and responsibility render them both responsible and capable of starting a new game in the toy industry? The second part – upcoming – answers these questions. Spoiler Alert: There are alternative ways to produce toys as HDIF in Armenia shows.
You Want to Learn More?
The US-American Non-Governmental Organisation China Labor Watch has conducted undercover research in Chinese companies to find out about working conditions there since 2001.
General background information about workers rights, wages and unions in China are provided by the China Labor Bulletin. General background knowledge on the toy business in Europe is provided by this practical guide.
The idea to write a paper on the international toy production came up when I read this report by the German Non-Governmental Organisation World Economy, Ecology and Development.