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Companies should continue to manufacture in emerging markets like China when they encounter difficulties, rather than withdraw in a “dictatorship-like way”, according to an academic who specialises in ethical leadership and emerging economies.
Tech company Gallagher Group has brought manufacturing back to New Zealand from China amid security concerns. And allegations of genocide and human rights abuse in Xinjiang, in China’s north-west, have prompted companies such as H&M and Nike to stop using cotton sourced from the region.
However Canterbury University management lecturer Anna Earl said companies should collaborate to improve the environment in emerging economies rather than withdrawing.
“First World countries cannot simply just say we are not going to operate, we are going to stop all our production in those markets because there is an issue of international relations, geopolitical relationships and also international trade,” she said
* Waikato firm Gallagher scored Five Eyes contracts because it kept manufacturing out of China
* Fonterra sells Chinese dairy farms for $552m to reduce debt
* Q & A: What happens when Fonterra sneezes
* NZ cosmetic firms unhappy about China insistence on animal testing
“If we stop all operations, it’s a coercive mechanism of responding to the issues. But this will not necessarily help those markets to change.
“If you completely stop your operations there, what sort of example are we setting? It’s a very dictatorship-like way of trying to show the other market, or your partners, that we are just going to stop and that’s it.
“I strongly disagree that we should just stop operations there.”
Gallagher chief executive Kahl Betham told a recent tech forum in Hamilton that its decision not to base its manufacturing in China had helped it score contracts with the ‘Five Eyes’ intelligence-sharing countries of New Zealand, Australia, Britain, Canada and the United States.
The company deliberately invested in peopleless automation to bring home manufacturing from China that was previously unaffordable here, he said.
For many companies, shifting manufacturing back to New Zealand would force them to raise prices, which would restrict their markets, said Victoria University professor of international business and strategy Siah Hwee Ang. We also don’t have the skills or scale of manufacturing in China, he said.
Companies that shifted out of China to appease Five Eyes countries risked being shut out of the market, he said.
“If you ever want to go to China again, I think good luck with that one, you will never get in again,” he said.
The Detail looks at the stoush over “the club” – the Five Eyes security agreement – that’s turned ugly, and whether it threatens New Zealand’s independence and relationship with China.
Waikato University law professor Alexander Gillespie said tech companies opting to manufacture in China could face concerns their software or hardware had “backdoors” that allowed Chinese officials remote access.
Gillespie said companies have to weigh up the risks of manufacturing in China and be mindful of their social responsibilities, especially around concerns like human rights which could cause a consumer backlash in the West.
Still, Earl said that while security was an issue that companies needed to be aware of and should consider, it shouldn’t be a dealbreaker to stop manufacturing in a country.
She suggested we start thinking about how we become comfortable sharing data, although noting that not all data could be shared depending on the company and what they manufactured.
Earl said companies should first do their homework about a market they were looking at, and understand what the issues are. They should base somebody in the country to understand how that market operates, fully immerse and embed themselves into the environment and set down clear standards for their company.
“If we want change and if we want equality in the world and if we want change for human rights in China or Russia or in Africa, it is definitely about global collective action,” she said. “It’s thinking about ‘we’ collectively, as opposed to ‘just me and my company’.
“You can actually lead the change, you can set an example of how a company should be socially responsible,” she said.
Earl cited the example of Fonterra Cooperative Group’s response after the industrial chemical melamine was found in baby milk formula manufactured by its Chinese partner Sanlu Group in 2008.
At the time, the company’s then chief executive Andrew Ferrier said Fonterra remained committed to working in China, and bringing world-class standards into the Chinese market.
Fonterra has since invested more than $1 billion in developing Chinese dairy farms, which has helped raise the quality of local milk supply in China, and is viewed positively by Chinese authorities, the company’s chief financial officer Marc Rivers said last month.
”Fonterra has been fantastic in the way they have actually managed different conflicts and in the way they deal with things,” Earl said. “The way they managed their relationships and managed their farms has been really a success.
“They haven’t stopped their operations, they changed the way they operate, and they operate in a very successful way in the Chinese market and other markets.”
Similarly, global dairy giant Danone had bought the biggest agricultural company in Russia and done a fantastic job in developing Russian agricultural systems, she said.