Taiwan's Path to Sustainability? Discussion of CSR in the Case of Lite-On - 政大學術集成

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(1)國立政治大學亞太研究英語碩士學位學程 International Master’s Program in Asia-Pacific Studies College of Social Sciences National Chengchi University 碩士論文 Master’s Thesis. 論文題目 Thesis Topic Taiwan’s Path to Sustainability? Discussion of CSR in the Case of Lite-On. Student: Magdalena Kuksová Advisor: Tang Ching-Ping. 中華民國 101 年 7 月 Month 07 Year 2012.

(2) 論文題目 Thesis Topic Taiwan’s Path to Sustainability? Discussion of CSR in the Case of Lite-On. Student: Magdalena Kuksová Advisor: Tang Ching-Ping. 研究生：古莉娜指導教授：湯京平. 國立政治大學亞太研究英語碩士學位學程碩士論文. A Thesis Submitted to International Master’s Program in Asia-Pacific Studies National Chengchi University In partial fulfillment of the Requirement For the degree of Master in China Studies. 中華民國 101 年 7 月 Month 07 Year 2012. ii.

(3) Acknowledgement I would like to express my gratitude to all those who supported me during completion of this thesis. I wish to thank my advisor, Prof. Tang Ching-Ping and committee members, Prof. Lin Chao-Chi and Prof. Yeh Yi-Chang for their encouragement and insightful comments. I would like to acknowledge the academic, financial and technical support of the National Chengchi University and the Ministry of Education of Taiwan. My sincere thanks also goes to my classmate Bernd Burkhardt for his stimulating discussions, good advice and revisions, for which I was extremely grateful. Last but not least, I owe my sincere gratitude to my mother for her love, patient support and understanding while studying abroad.. iii.

(4) Abstract This thesis is focused on case study research of Corporate Social Responsibility (CSR) in the Taiwanese OEM/ODM corporation Lite-On. Lite-On provides a representative sample of Taiwan’s key industry - the high-tech industry with OEM/ODM manufacturers supplying to global brands. The study has two objectives. The first objective is to introduce the CSR instruments currently used in electronics industry, with a special attention paid to their usage among Taiwanese companies. How successful is the implementation of CSR in the electronics supply chain? The second objective is to study the current status of CSR in Taiwan, while considering a wider context of business ethics and management practice in the Chinese communities. What factors shape the CSR in Taiwanese-invested corporations? After examining these objectives, the key research question of this study is to find out why Taiwanese companies facing harsh competition in the supply chain engage in implementation of corporate social responsibility programs. The thesis is divided into five chapters. First, theoretical concept of CSR and new role of multinational corporations in the global supply chain are introduced. The next chapter recounts the story of Lite-On corporation and its CSR practices, thereby offering a valuable micro-perspective on CSR in Taiwan. The study continues with analysis of legal and voluntary instruments that attempt to address the CSR issues. The final section portrays current status and understanding of CSR in Taiwan’s business community and draws on CSR challenges.. Key words Corporate Social Responsibility, Lite-On, OEM/ODM, global supply chain, Taiwan. iv.

(5) TABLE OF CONTENTS List of Figures . 7 . List of Abbreviations . 8 . 1. Introduction 1.1 Research Background 1.2 Research Objective 1.3 Research Design 1.4 Organization of Chapters . 10 10 12 13 14 . 2. Changes in the World Economy and the Need for CSR 2.1 Multinationals as New Powerful Actors of International Relations 2.2 Classical Model of Corporate Social Responsibility 2.3 Stakeholder Theory 2.4 Emergence of New Stakeholders . 15 15 19 23 24 . 3. Production of Electronics and Selected CSR Risks 3.1 Magnitude of the Production 3.2 Perplexed Supply Chains 3.3 Most Common Labor Issues . 26 26 27 29 . 4. Corporate Social Responsibility: Case of LiteOn 4.1 LiteOn Company Profile 4.2 LiteOn Corporate Social and Environmental Responsibility 4.2.1 Lite‐On Group’s Codes of Conduct 4.2.2 Managing CSR in Lite‐On Technology 4.2.3 Lite‐On’s Key Stakeholders 4.2.4 Lite‐On Technology’s Certifications and Awards 4.3 Labor Force in LiteOn 4.4 Labor Issues in LiteOn Factories in Mainland China 4.5 LiteOn’s Response to Labor Issues . 32 32 33 34 35 37 41 42 42 44 . 5. Responses to Existing Labor Issues 46 5.1 Workers’ Protests 46 5.2 China’s Government Mechanisms: Labor Inspections, Labor Legislation and Legal Proceedings 47 5.2.1 Labor Inspections 47 5.2.2 Labor Legislation 47 5.2.3 Labor Disputes 47 5.3 The Role of International Labor Organization 50 5.4 Corporate Social Responsibility as a Response to Labor Issues 51 5.4.1 Electronic Industry Citizenship Coalition 52 5.4.2 Global e‐Sustainability Initiative 54 5.4.3 International Organization for Standardization 55 5.4.4 SA 8000 Standard for Decent Work 57 5.4.5 Global Reporting Initiative 59 5.4.6 Fair Labor Association 63 5.4.7 Auditing Procedures in Lite‐On Technology Factories 66 5.4.8 United Nations Global Compact 67 6. Current Status and Understanding of CSR in Taiwan 6.1 Environmental Pillar of CSR 6.1.1 Greenhouse Gas Inventory 6.1.2 Carbon Footprint Label System . 70 70 70 72 .

(6) 6.1.3 Carbon Disclosure Project 6.2 Social Pillar of CSR 6.2.1 Working Culture in the Chinese Communities 6.2.2 Loopholes in Taiwan’s Labor Law 6.2.3 Violations of Labor Law in Taiwan 6.2.4 Labor Movement 6.3 Economic Pillar 6.4 Understanding of CSR among Taiwan’s Business Community 6.5 Suppliers‘ Motivation for CSR 6.6 Ethical and CSR Challenges in the Chinese Communities 6.7 Outlook . 74 76 76 77 78 79 81 84 87 90 95 98 . 7. Conclusion . 101 . References . 6.

(7) List of Figures Figure 1: The OLI model by Dunning. Figure 2: Three pillars of CSR and related activities. Figure 3: Percentage of global output of selected categories of goods produced in China in 1980 and 2007. Figure 4: Perplexity of supply chains in the production of electronics (selected firsttier suppliers and buyers). Figure 5: Location of Lite-On Technology’s major operations centers. Figure 6: Lite-On Technology’s CSER Committee and its responsibilities. Figure 7: Methods of labor dispute resolution in China. Figure 8: Number of arbitration cases and verdicts by arbitration committees. Figure 9: Comparison of SA 8000 and ISO 26000. Figure 10: List of Taiwanese companies that reported about their CSR based on GRI standards in 2010. Figure 11: The control procedure for hazardous substances in Lite-On Technology. Figure 12: Perception and implementation of CSR practices in Taiwan. Figure 13: Taiwan’s 30 best corporate citizens according to the CommonWealth Magazine. Figure 14: Supply chain analysis on the example of iPhone. Figure 15: Motivational factors for Lite-On Technology CSR program.. 7.

(8) List of Abbreviations ACFTU – All China Federation of Trade Unions BSI – British Standards Institution CCP – Chinese Communist Party CDP - Carbon Disclosure Project CLA - Council of Labor Affairs CSER - Corporate Social and Environmental Responsibility CSR – Corporate Social Responsibility DNV – Det Norske Veritas EICC - Electronic Industry Citizenship Coalition EMAS – Eco-Management and Audit Scheme E-TASC - Electronics – Tool for Accountable Supply Chains FLA – Fair Labor Association GeSI - Global e-Sustainability Initiative GHG – Greenhouse Gas GRI - Global Reporting Initiative GRI G3 - Global Reporting Initiative Generation 3 GTSM - GreTai Securities Market HR – Human Resources ICT – Information and Communication Technology IEM - Independent External Monitoring IEV - Independent External Verifications ILO – International Labor Organization ISO – International Organization for Standardization KMT - Kuomintang KPI – Key Performance Indicator LBG - London Benchmarking Group LCD - Liquid Crystal Display. 8.

(9) LED - Light Emitting Diode MNC – Multinational Corporation NGO – Non-governmental Organization ODM – Original Design Manufacturer OECD – Organization for Economic Cooperation and Development OEM – Original Equipment Manufacturer PR – Public Relations RoHS - Restriction of Hazardous Substances ROI – Return on Investment SA – Social Accountability SACOM – Students & Scholars Against Corporate Misbehaviour SGS – Société Générale de Surveillance TWSE - Taiwan Stock Exchange UN – United Nations VAP – Validated Audit Process. 9.

(10) 1. Introduction 1.1 Research Background Social, cultural and technological changes over the last decades have caused a new, dominant characteristic in world economy: globalization. Simultaneously, the world has witnessed an unprecedented expansion of international political institutions, which increasingly prove unable to control the processes of globalization and their respective consequences. Globalization radically alters the shape of world economy, particularly by gradually removing governmental policies limiting transnational flows in the past. Neoliberal international trade, mergers and acquisitions, new international division of labor, foreign direct investment and joint ventures formed by various multinational corporations (MNCs) have gained significant importance. The structure of multinational corporations can be characterized as follows: they are organized through sole headquarters, which decide about commercial operations and suppliers in other (often developing) countries. On the one hand, corporations contribute to economic development of such countries, create job opportunities and enable transfer of technologies. On the other hand, their operations also entail negative impacts, such as violation of labor and human rights, environmental degradation, interference into political affairs of sovereign states etc. Additionally, developing countries are characterized by their low standards and weak legislature, which amplify the negative impact of corporate operations. It must therefore be questioned whether the economic growth, generated by through such operations, is in any way legitimate and sustainable. Even though multinational corporations are considered engines of economic growth for the world, universal prosperity is not achieved. Corporations, as principal agents of international relations, are responsible for the formation of an international environment, entailing respect of international regulations and laws. A great number of enterprises, including Taiwanese corporations, have shifted their operations to China. The world has thus become dependent on China as a location for production and manufacturing. In this way, the economic status of China is being reinforced, yet. 10.

(11) the public is often not aware of the conditions, under which the production takes place. The topic of Corporate Social Responsibility (CSR) is indeed a current issue. Since the outbreak of multiple economic crises, many people started to talk about the necessity to rebuild international institutions and reshape their policies. Accordingly, the president of the World Bank called the 21st century the century of “responsible globalization: one that would encourage balanced global growth and financial stability, embrace global efforts to counter climate change, and advance opportunity for the poorest.”1 The challenge remains as to how leaders and individuals will translate this idea of transformation into action. It is obvious that the change will be impossible without strong cooperation and acknowledgment of responsibility. Up to now, efforts to address the issues of Corporate Social Responsibility have stemmed from both the international community and the enterprises themselves. However, these efforts seem to be rather unsuccessful and fragmented. Media, nongovernmental organizations and researchers still report increasing numbers of cases related to environmental and labor issues occurring in global production. In fact, it is very difficult to monitor the impact of business operations, especially in the developing world, and to determine who should bear the responsibility. The views on who should be held responsible differ gravely: some actors call for broadening of corporations’ legal liability to their subsidiaries and suppliers, others advocate voluntary commitments solely established and monitored by corporations themselves. Past research and reports brought evidence that Taiwanese corporations tend to be labor-abusive,2 both in Taiwan and their investment locations abroad. Taiwanese corporations make up the largest investor group in Mainland China (after Hong Kong), with the bulk of operations in the electronics industry. This is a labor-intensive industry with perplexed supply chains, thus entailing great risks to Corporate Social Responsibility. Furthermore, labor issues become more complicated to resolve due to China’s specific governing of the economy and the legislative environment - one prominent example being the non-existence of independent trade unions.. 1 2. The World Bank, 2009. For example Wang, 2005.. 11.

(12) 1.2 Research Objective Media increasingly draw attention to environmental and labor conditions, under which production of goods takes place in the global factory - China. Yet, manufacturing businesses in China are to a great extent managed by Taiwanese corporations. Their management methods therefore play an important role in shaping CSR practices in their investment locations. The existing research on CSR down the supply chain of electronics manufacturing appears to overlook the management methods and other important characteristics instilled by Taiwan’s business environment. This thesis is focused on case study research of Corporate Social Responsibility in the Taiwanese OEM/ODM corporation Lite-On, which manufactures its products exclusively in Mainland China. The reasons for choosing the company Lite-On are threefold: first, it provides a representative sample of Taiwan’s key industry, which is high-tech industry with OEM/ODM manufacturers supplying to global brands. Second, it matches the widely discussed issues of CSR in the production of electronics, especially the labor and environmental aspects and the perplexity of supply chains in this industry. Third, Lite-On has been developing its CSR program since 2008, and thus offers some usable data needed for the analysis. A thorough research has been conducted about CSR of global brands in various industries, including Nike, Starbucks, Apple and others. However, only few researchers studied about CSR of their first-tier suppliers that are often not known to the public and consumers. This study attempts to fill this gap by evaluating CSR from the perspective of Taiwanese first-tier supplier unknown to the consumer. What is the motivation of first-tier suppliers to develop CSR? What costs and benefits does CSR bring to them? How do they perceive the relations with other stakeholders: global brands, employees, governments in Taiwan and China, competitors, consumers, communities? Besides employing a micro-perspective of CSR demonstrated in the case study of Lite-On corporation, this study has two objectives. The first objective is to introduce the CSR instruments currently used in the electronics industry, with a special attention paid to their usage among Taiwanese companies. How successful is the. 12.

(13) implementation of CSR in the electronics supply chain? The second objective is to study the current status of CSR in Taiwan, while considering a wider context of business ethics and management practice in the Chinese communities.3 What factors shape the CSR in Taiwanese-invested corporations? Only after taking a closer look at the global supply chains and local characteristics of the business environment, the relationship between business and society, legal framework and voluntary CSR instruments can a discussion about Taiwan’s path to sustainability be opened.. 1.3 Research Design This study uses primary and secondary data from multiple sources. The primary data was collected between February and June 2012 through interviews and correspondence with experts on CSR and employees in Taiwan. A thorough search in the globally used CSR databases has been undertaken in order to gather information about activities of Taiwanese corporations. The primary data provides a valuable picture of labor and environmental conditions in these companies. The secondary data includes theoretical literature on CSR and business ethics, research papers, articles from journals and media. Furthermore, the secondary data consists of statements about CSR issued by relevant ministries, companies’ annual reports and CSR reports, and evidence collected by journalists, non-governmental organizations and academics in Taiwanese-invested factories. The secondary data helps accommodate the needs of this study and thus provides an indispensable source of information. The key research question of this study is to find out why Taiwanese corporations facing harsh competition in the supply chain engage in implementation of corporate social responsibility programs. What are their motivational factors? What benefits do they draw from CSR? What is the cost distribution of CSR activities?. 3. The term “Chinese cmmunities” in this thesis not only refers to Mainland China, but also to areas deeply influenced by Chinese culture, such as Hong Kong and Taiwan. If there will be reference to Taiwan or Hong Kong in order to express local differences, terms “Taiwanese” and “Hong Kong” will be employed respectively. “PRC” will be used to refer to Mainland China excluding Hong Kong. The idea is to tackle business behavior in relation to business ethics and CSR in the Chinese populated areas, although regional differences may exist. Moreover, Hong Kong and Taiwanese corporations are the biggest investors in Mainland China and the whole region is interrelated.. 13.

(14) 1.4 Organization of Chapters After the first introductory chapter, the second chapter provides an overview of the new role played by multinational corporations in a globalized world. It also introduces the theoretical concept of Corporate Social Responsibility and stakeholder theory that are relevant to this subject. The third chapter portrays the picture of CSR in the global production of electronics and its selected risks, the labor issues in particular. The fourth chapter recounts the story of Lite-On corporation and its CSR practices, thereby offering a valuable micro-perspective on CSR in Taiwan. Responses to these labor issues and their effectiveness are analyzed in the fifth chapter. These consist of responses from various stakeholders, starting at the grass-root level (workers, trade unions), moving up to the industry coalition and cluster level (industry-wide initiatives such as the Electronic Industry Citizenship Coalition) and ending at the international community level (e.g. the United Nations Global Compact). The final chapter brings together the three pillars of CSR in Taiwan (environment, society and economy), local management practices and business ethics in the Chinese communities. In conclusion, it draws on motivation for CSR and current CSR challenges in Taiwanese companies.. 14.

(15) 2. Changes in the World Economy and the Need for CSR 2.1 Multinationals as New Powerful Actors of International Relations The East India and West India companies, founded in the 17th century to carry out trade between metropoles and colonies, are considered forerunners of today’s multinational corporations. The advent of industrial revolution and the development of maritime transport had shown that colonies could become markets for products originating in the metropoles, thus enlarging their role as providers of raw materials. Entities, which first obtained access to these new markets, were the early multinational companies. Yet, these companies were strongly tied to their home countries. Local governments were sponsoring them by various means. But soon, the aim of public interest had been transformed into economic growth, which could not have been pursued without the expansion of capitalist companies, including multinational companies. The role played by state in world economy of the 20th century varied depending on external factors. Liberalism was a dominant ideology until the World War I; contrarily, policies of state interference into the economy prevailed until 1950. The position of the US as a victorious power after the World War II resulted into spread of Keynesianism and Fordism, which were characterized by state regulation. Multinational corporations managed to extricate from this Fordist system. They were driven by desire to avoid progressive taxation and to keep handsome profits they began to achieve.4 1970’s required strong governments due to series of crises. But once the crises were over, international competition re-intensified and requirements for more flexible and more entrepreneurial state policy re-appeared. State responded with deregulation, privatization and regulatory concessions to multinational entities, and thus voluntarily surrendered its economic power.5 Since the 1970’s, responsibility of leaders has begun to shift to responsibility of companies.6. 4. Lehmannova, 2003, p. 224. Lehmannova, 2003, p. 226. 6 Blowfield & Murray, 2008, p. 57. 5. 15.

(16) Today’s state of the world economy may be called a system of flexible Post-Fordism or “flexible capitalism”.7 It lies in the new organization of work, labor market, production and consumption.8 Emergence of Post-Fordism was primarily caused by technical changes and increasing competition, which resulted in shifting of industrial production in selected developing countries and their gradual industrialization. Multinational companies, which initiated this shift, have not only become main actors of international trade, but also actors with exceptional power and influence on policies of sovereign states. Spatial reorganization, networking of relations and new business strategies further enabled this shift of power. Corporations managed to greatly benefit from scientific research, convert scientific results into profits and thus became driving force behind economic progress. In economic theory, John H. Dunning has developed the “OLI model” (O ownership, L - location, I – internalization) that describes division of corporate organisation between the developed and developing countries. Corporations from developed countries usually possess patent or brand name and thus have ownership advantage and seek foreign direct investment (FDI) abroad. Developing countries offer cheap labor, growing market, tax incentives, raw materials and other factors attached to the location, but at the same time are motivated to engage in FDI in order to maximize the location advantage. The production is finally internalized under the scope of foreign direct investment if the corporation realizes that its own production is more beneficial than licensing or joint venture.. Figure 1: The OLI model by Dunning. Source: Based on Cantwell & Narula, 2003. 7 8. Dunning, 1997, p. 33. Lehmannova, 2003, p. 225.. 16.

(17) The current shape of world economy, increasing mergers and acquisitions, relentless competition, scientific and technological progress, pressure to reduce costs and more demanding consumers have led the corporations to transfer their operations into developing countries. Capital of these corporations can be better raised in the developing countries with cheap factors of production. On the one hand, foreign direct investments by multinational corporations bring wealth, technology and new business opportunities for local entrepreneurs. Additionally, this transfer enables corporations to generate higher revenues. On the other hand, developing countries, including China, face serious problems, such as poverty, illiteracy, unemployment, inadequate legislation, corruption etc. Multinational corporations, entering these areas with new job offers and promises of better living standards, have an unprecedented bargaining power. Corporate turnovers sometimes exceed gross domestic product of developing countries, which further strengthens the position of MNCs in international relations. Today, there are about 82 000 of multinational corporations in the world with more than 810 000 subsidiaries. 9 Corporations usually have headquarters in the home country, where they are also subject to local legislation. Simultaneously, their subsidiaries and companies in the supply chain operate in developing countries. However, these are subject to legislation of developing countries, where decent working conditions and sufficient environmental protection are often not guaranteed. Law enforcement in these countries remains difficult too. Therefore, direct and indirect effects of multinational corporations’ operations in developing countries may lead to exploitation and other negative phenomena. The impact caused by activities of multinational corporations, their subsidiaries and other components in the supply chain, may not always be positive to the communities in which they operate. Flexibility has become the key to success today. Companies perceive flexibility as a very positive asset: flexible agents are able to respond effectively to information and impulses, use them to their advantage and empower individualism. The ability to be flexible enables companies to gain competitive advantage in the market. Corporate strategies resulting from the all-society demand for flexibility are characterized by flexible forms of ownership and internal organization. 9. World Investment Report, 2009, p. 17. Note: Number may vary depending on the definition of a multinational company.. 17.

(18) In order to facilitate geographical transitions, corporations choose the strategy of subcontracted suppliers. Subcontractors assemble and complete goods in developing countries with low standards, particularly in China. Lehmannova et al. refers to these subcontractors as to network organizations10 with following characteristics: “In a network organization, trade unions are usually banned and collective bargaining between employee and employer does not exist. Flexible system of work organization increasingly uses cheap labor of women, and thus exploitation, especially among migrant workers and in developing countries, is growing.”11 Although strategies reflecting flexibility generate huge profits for companies and individuals, it is questionable whether such system can be sustainable, notably if all elements of the system behave individualistically. In this context, Lehmannova et al. talk about decline of civil society, which is manifested by a weakening sense for solidarity. Civil society should be restored by conscious activities of people, which shall result in voluntary help and self-help actions that should revitalise the sense for solidarity.12 Many citizens and companies use their funds for charitable purposes. Undoubtedly, such behavior is praiseworthy, however, it mitigates the unfavourable consequences of globalization in the short run only. If sustainable growth is to be achieved in the long run, a revision of current individualistic system and greater responsibility of its actors are indispensable. The financial and economic crisis of 2008 has proven to be the case in point. Breakdowns of major financial institutions and declines in stock prices have shown that the Wall Street-dominated system worked against sustainable and socially equitable development. Consequently, new innovative models are being sought. One of them could be the model of Corporate Social Responsibility.. 10. Lehmannova, 2003, p. 228. Ibid. 12 Lehmannova, 2003, p. 248. 11. 18.

(19) 2.2 Classical Model of Corporate Social Responsibility The classical model of CSR has its roots in neoclassical economic theory and by all means had the biggest impact on entrepreneurship in the 20th century. In the classical model, the sole responsibility of corporation is to maximize profit while abiding to the law. This concept is based on the role played by businesses in market economy and free society. The most famous pioneer of the classical model of CSR was Milton Friedman. In his book Capitalism and Freedom published in 1962, he argues that the sole responsibility of enterprise in a free economy is to use its resources and engage in activities that lead to increase in corporate profits. The social responsibility of managers is then to earn as much as possible for the business owners.13 To a large extent, Friedman’s approach is based on private property right. Company is understood as an object of private property whose owner has the right to dispose of the property at his own discretion. The point is that manager is the company owner’s employee and directly reports to him (them). Manager’s responsibility thus should be in accordance with owners’ requirements and desires, which are usually associated with profit maximization and minimum ethical business practices. If the owner of company decides that the company’s primary goal will be to benefit employees and community, then any decision fulfilling such goal would be correct. However, if the owner seeks maximization of company’s value in the market, such decision would be irresponsible. Managers would use resources to pursue their own goals. Some CSR experts call this conception of corporate citizenship, where shareholders are the greatest beneficiaries, as minimalist.14 Yet, in the market economy, there are many situations under which the effort to maximize profits does not benefit society and consumers. Economists call them market failures: most often they refer to environmental pollution and waste of resources. Costs associated with these problems are not paid by seller or buyer. Therefore, agreed price for a good is not balanced and does not reflect the real costs and benefits. As a result, there is no optimal distribution of costs and benefits, which would have been achieved only by regulation of the market and internalization of these externalities. 13 14. Friedman, 2002, p. 133. Locke, 2002, p. 3.. 19.

(20) Another example of market failure is public goods. These include clean air, underground water, fish in the oceans, safe streets, etc. It is difficult to create realistic pricing mechanisms that would evaluate these assets. However, without knowing the specific price, the market cannot ensure a fair allocation of these goods. Thus, it is unclear whether market mechanisms are able to ensure the optimal satisfaction of public interest regarding the public goods. If these goods are to be preserved, it is desirable to design an additional mechanism: utilitarian approach.15 This approach revises the classical model of social responsibility and the role of managers through consequence ethics: the profit maximization may result in increase of public welfare, but managers must consider a number of others - non-financial - consequences of their decisions. The classical approach argues that the state should effectively deal with market failures. Once these market failures are properly addressed by the state, the corporate responsibility is limited to compliance with law and satisfaction of consumers’ demand. However, this is possible only provided that business does not affect the formation of legislation and that the government only creates laws and regulations that are to benefit everyone. In practice, however, the legislation is formed under the pressure of lobbyists and this assumption is not fulfilled. The corporation Lite-On and Taiwan’s government are the case in point: “We [Lite-On] engaged with Taiwan government to legislate relating GHG16 emission regulation to enforce the GHG reduction over all the industrial sector. We participated in the seminar sponsored by government for checking the legislative progress of GHG reduction act. Besides, we also push Environmental Protection Association to act the taxation of carbon. And, government has initiated organizing an office to coach industry joining the Carbon trading.”17 Similarly, the second assumption that the business passively satisfies consumer demand may be disputed too. Today, companies use many marketing instruments in order to stimulate demand or entirely create artificial demand. 15 16. DesJardins, 2006, p. 55-63. Greenhouse Gas; the issue of greenhouse gas emissions in Taiwan will be elaborated in the chapter. 6. 17. Carbon Disclosure Project, 2009.. 20.

(21) According to Friedman, compliance with law is the only restriction on corporate activities when achieving the profit maximization. However, the experience has shown that compliance with law is not sufficient if the company’s behavior is to be considered as ethical. First, many ethical failures (e.g. the accounting scandal of Enron) led to the formation of new legislation (e.g. Sarbanes-Oxley Act in the US) or its reforms. 18 Some corporations abide by voluntarily commitments beyond law, which are subsequently enacted, thus leading to legislative reforms and improvement of business environment. Second, Friedman assumes that whatever is not explicitly illegal, is socially responsible. Yet, legal standards are often ambiguous and lawyers interpret law in different ways. Moreover, in China, law cannot be interpreted by other than Chinese entities. When necessary, foreign companies have to ask Chinese specialized legal agencies to represent them. Sometimes, ethical problems arise when lawyers expand the defensibility of the managerial decision in question during the judicial process. Some corporations even calculate costs and benefits resulting from unethical or illegal behavior depending on the probability of legal action and win or failure in the judicial process. As described above, violations of assumptions of classical model, existence of market failures, ambiguity of law and negative consequences of purely market behavior prove that free market may not be adequate tool to maximize profit. Moreover, this goal may not always be considered as ethical. Thus, it has become a common practice for managers to engage in philanthropic activities in order to return what business takes from the society. This approach extends the traditional view of CSR presented by Friedman, yet it still focuses on maximization of shareholders’ wealth and optimization of efficiency. The World Bank defines Corporate Social Responsibility as “the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life, in ways that are both good for business and good for [international] development.” 19 Although many other definitions are used in Europe, the one. 18 19. DesJardins, 2006, p. 63. Blowfield & Murray, 2008, p. 13.. 21.

(22) provided by the World Bank seems to be prevalent in Asian academic and business community.20 In practice, the CSR concept usually consists of three pillars (economic, social and environmental) with respected stakeholders and activities. Companies’ CSR reports often follow this triple-bottom line framework too.. Figure 2: Three pillars of CSR and related activities. Source: Adapted and translated from Putnová & Seknička, 2007.. However, the practical usage of CSR framework differs from the theoretical model described above. In the most commonly used framework for CSR reporting – the Global Reporting Initiative (GRI) 21 - the three pillars are not balanced. Instead, companies report about indicators grouped in six areas: •. Environmental (30 indicators). •. Labor practice and decent work (14 indicators). •. Human rights (11 indicators). •. Economic (9 indicators). •. Product responsibility (9 indicators). 20. For example, CSR Asia defines Corporate Social Responsibility as “a company’s commitment to operating in an economically, socially and environmentally sustainable manner whilst balancing the interests of diverse stakeholders. We believe that stakeholder engagement is central to CSR.” CSR Asia website. 21 Described in the subchapter 5.4.5.. 22.

(23) •. Society performance (8 indicators).. In the GRI design, environmental criteria dominate over other groups of indicators. This results in companies paying more attention to environmental policies. Moreover, engaging in green operations has a demonstrable impact on company’s cost reduction. Consequently, green issues become prioritized when it comes to company’s budget decisions relating to CSR.. 2.3 Stakeholder Theory The stakeholder theory was added into the debate about the nature of responsibilities in the 1980’s.22 It elaborates on the concept of Corporate Social Responsibility and seeks to incorporate ethical aspects into internal business processes. Stakeholder theory is based on the fact that each managerial decision has an impact on society. Corporation is seen as an entity whose activity is influenced by several stakeholders. Stakeholders include those with interest in company’s activities and those touched by its business activities in some way. Stakeholder theory rejects the basic assumption of classical theory, that shareholders’ interests take precedence over the interests of others. Corporations should therefore be accountable to its stakeholder groups, and stakeholders have the right to ask for this responsibility. The historical evolution of legislation well portrays how various stakeholders started entering corporate activities. In the 19th century, the primary responsibility was to bring profits to owners. Only few existing trade unions claimed partial undertaking of responsibility for working conditions. In the 20th century, not only corporations extended their liabilities to other aspects (safety in the workplace, prohibition of child labor, setting of minimum wage, maximum work hours), but these aspects were also anchored in the law or international documents such as the ILO Declaration on Fundamental Principles and Rights at Work. It can be concluded that today, it is virtually impossible for companies to ignore stakeholders’ interests.. 22. Blowfield & Murray, 2008, p. 57.. 23.

(24) 2.4 Emergence of New Stakeholders Since 1930s, when first corporate responsibility texts were published, the CSR debate has witnessed a considerable boom. The US New Deal, European concept of welfare state, nationalization, emergence of state enterprises after the World War II and eventual shift from individual leaders’ responsibility to corporate responsibility all shaped this development. The debate culminated in the 1970’s and 1980’s, when the classical concept of CSR presented by Milton Friedman was juxtaposed with the stakeholder theory. Since 1980’s, CSR has become a widespread management practice in the developed world. Major corporations began to implement environmental management systems and corporate social performance in the 1990’s. Mid-1990’s then marked emergence of stakeholder partnerships. After 2000, the corporate world has witnessed an abrupt rise of new, more complex CSR topics: business, poverty and sustainability.23 This evolution of CSR has not only altered the traditional preference for shareholders, but has also brought about a large number of new stakeholders that corporations need to take into account. Undoubtedly, the model of corporate citizenship has shifted from minimalistic to encompassing, where managers are responsible to a number of stakeholder groups. Media, non-governmental organizations and consumers have emerged as relatively new, but powerful stakeholders. Public has become more attentive to labor and environmental issues, including the issues associated with production of cheap, popular goods in developing countries. Until recently, the attention was focused on garment and footwear industry. But with massive expansion of personal computers and electronic devices, more evidence about violations of labor rights in the high-tech sector is brought up. Based on investigation by a Swiss journalist,24 the average price for which a notebook was sold in Switzerland in 2008 was 2 200 Swiss Francs (about 2 400 USD), while its value at the moment of leaving factory in China was 175 Swiss Francs (about 190 USD) only. On the one hand, multinationals must invest in the research and development, logistics, packaging and other costs. On the other hand, a significant. 23 24. Based on Blowfield & Murray, 2008, p. 57. TSR, 2008.. 24.

(25) proportion of corporate margin still goes to top managers’ premiums and dividends to shareholders. The difference between retail price and production price being almost thirteen fold, many consumers wonder about the actual cost distribution and demand more transparency and justice in supply chains.. 25.

(26) 3. Production of Electronics and Selected CSR Risks 3.1 Magnitude of the Production China is often being referred to as a “global factory” due to economies of scale, which multinationals are capable to achieve there. The massiveness of the production that takes place in China is evident for the high-tech industry, which is a sector dominated by Taiwanese corporations. The change in importance of global production in China between 1980 and 2007 is demonstrated in the chart below:. 80%. 1980 27%. 26%. 2007. 23% 16%. 2.3% Notebooks. Toys. 4.0% . 1.9% Footwear. Apparel. 4.6% Textile. Figure 3: Percentage of global output of selected categories of goods produced in China in 1980 and 2007. Source: Data based on Lardy, 2007.. Taiwanese entrepreneurs entered Mainland China earlier than most Western entrepreneurs, motivated by low labor and land costs, cheap and abundant resources and size of the market. Particularly in the production of electronic goods, where much labor is needed, the motivation to relocate Taiwanese factories was clear-cut. In fact, many Taiwanese manufactures established their operations in China in 1989, the year in which foreign governments and international institutions suspended their FDI commitments and loans to China due to the Tiananmen Square incident. Even though foreign direct investment regimes between Taiwan and China were not fully liberalized at that time, ethnic connections enabled entrepreneurs to by-pass official. 26.

(27) restrictions and gain competitive advantage. Statistics on the magnitude of Taiwanese investments (including unofficial investments) in Mainland China vary, but they are estimated to amount up to 400 billion of USD cumulatively since the late 1980’s. 25 At the same time, there are about 1.5 million Taiwanese people permanently working in China. Nowadays, multinational corporations may have up to thousands of first-tier suppliers in China. For example, Sony claims to have about 4 000 first-tier suppliers in China whose CSR policies are being monitored by the corporation.26 Yet, contrarily to corporate reports, media bring more evidence that environmental and labor standards are not respected in the production of electronics. Due to perplexity of supply chains and raw material suppliers in this industry, monitoring of the situation remains a challenging task.. 3.2 Perplexed Supply Chains The production of electronics is the key industry in the region of Mainland China and Taiwan. At the same time, it poses many risks to the Corporate Social Responsibility due to existence of perplexed supply chains across national borders and due to a great number of various components and raw materials entering into the production and assembly operations. With reference to Lite-On, the perplexity of supply chains may be illustrated by the following simplified scheme:. 25 26. McKinsey&Company, 2012. SOMO, 2009, p. 5.. 27.

(28) Figure 4: Perplexity of supply chains in the production of electronics (selected firsttier suppliers and buyers). Mixed sources: Apple, 2012; Dell, 2011; HP, 2011; Lite-On, 2012; Sony, 2012; Toshiba 2012; SACOM & Pain pour le Prochain, 2008.. Apple (US), HP (US), Dell (US), Toshiba (Japan), Acer (Taiwan), IBM (US), Lenovo (China), Motorola (US), Sony (Japan), Nokia (Finland), Samsung (South Korea), Hitachi (Japan), Microsoft (US), LG (South Korea), Logitech (Switzerland), Siemens (Germany), Foxconn (Taiwan) and NEC (Japan) are Lite-On’s customers. Since 2011, three multinational companies (Dell, HP and Apple) have made their list of first-tier suppliers public: Lite-On Group is on the list of all the three corporations. The list of Lite-On’s suppliers is not yet publicly available, but according to the Lite-On’s 2009 CSR report, roughly 90% of its vendors are local manufacturers in Mainland China.27 Fast pace of development of electronics and perplexed supply chains in the IT industry involve many challenges to Corporate Social Responsibility. Over the past decade, stakeholders started to call for ethical supply chain, trying to bring more justice into global production processes and improve the working conditions. Yet, the real setting of supply chain seems to work against this: engineers are given less time. 27. Lite-On CSR Report, 2009, p. 98.. 28.

(29) to develop electronic products. For example, the time period for design of mobile phones was shortened from 15 months in 2006 to 9 months in 2011.28 In reality, many labor issues down the supply chain occur as a consequence of shorter development periods, just-in-time methods of production, demand volatility and frequent last moment changes to products that global brands ask from their suppliers.. 3.3 Most Common Labor Issues “Having a code of conduct and being part of an industry initiative on workers’ rights has become standard practice for multinationals. But there are big differences in the toughness of codes, how rigorously compliance is monitored and how remedial action is taken.”29 Clearly, Lite-On is not the only corporation where violations of labor law and corporate code of conducts occurred. Non-governmental organizations and media bring more evidence about sweatshop conditions in the production of electronics that takes place in developing countries. For example, in 2010 there was a total of 424 labor strikes at companies in Vietnam, out of which 128 occurred in Taiwan-invested companies.30 Besides NGOs, academic researchers also bring evidence about labor law and code of conduct violations in Taiwanese and Korean corporations from their fieldwork abroad.31 The problem seems to be industry-wide and involving changes and challenges of the IT industry in the region. The difference is how and if the companies down the supply chain approach the problems. In Taiwan itself, illegal practices, issues of overwork and occupational illnesses are not uncommon. Media pay increasing attention to the problem, harming the image of Taiwan’s high-tech industry both domestically and internationally. Between January and June 2011 only, the Council of Labor Affairs of Taiwan sanctioned about 300 high-tech companies for ignoring workers’ fundamental labor rights.32 Yet, Chinese workers still prefer working for Taiwanese companies if they are given the choice. 28. Taipei Times, May 8, 2011. The Economist, March 31, 2012. 30 American Chamber of Commerce in Vietnam, 2011. 31 Wang, 2005. 32 CommonWealth Magazine, August 10, 2011. 29. 29.

(30) between Chinese and Taiwanese employer. The Western companies rank among the most desirable employers.33 The most frequent labor issues occurring in facilities in China may be summarized as following: •. Workers do not receive their working contracts;. •. Workers work excessive working hours without overtime pay;. •. Workers are paid lower than minimum statutory wages;. •. Workers are forced to work and work overtime;. •. Health and safety risks are frequent due to insufficient or non-existing protection;. •. Child labor occurs;. •. Free trade unions do not exist;. •. Authoritarian factory regulations and harsh management are common.. Factories, as direct employers of labor force, bear the responsibility for compliance with labor law and ILO international labor standards, by which China has abided. According to the International Confederation of Free Trade Unions,34 monitoring of labor conditions and compliance with labor law in China by state institutions is very weak. Tens of millions of seasonal workers often work without labor contracts, do not receive minimum wages, their superiors falsify workers’ payrolls and do not pay workers accordingly or deduct certain amounts directly from their wages. Sometimes, the calculations of hourly wage are intentionally complicated, so it is difficult to recalculate and verify them. Often, workers are not instructed in the content of working contracts neither in employer’s duty to pay at least minimum wage. Another issues include lack of transparency, inaccuracy of government statistics, difficult law enforcement and corruption practices. Companies in Taiwan have been subject to criticism for similar sweatshop conditions as reported in Mainland China: child labor, excessive and forced overtime working, deduction of overtime wages, cutting labor benefits, poor health and safety conditions, monitoring of employees’ movement, employers’ sabotaging of trade unions, violation of Labor Union Law, underreporting of employees’ wages to the 33 34. Dragon Business Network, March 1, 2011. International Labor Organization, 2007.. 30.

(31) Labor Insurance Bureau etc. According to the statistics, two workers die from overwork every 15 days. Yet, workers’ salaries in 2012 remain at the same level as in 1999 and 42.83% of total workforce earned less than 30 000 NTD per month in 2012. 35 Furthermore, even big Taiwanese companies prefer hiring of temporary workers and contract work systems that allow them to push the labor costs down, but bring insecurity and non-stability for workers.. 35. Taipei Times, May 1, 2012.. 31.

(32) 4. Corporate Social Responsibility: Case of Lite-On 4.1 Lite-On Company Profile Lite-On 36 is a large manufacturer of consumer electronics including LED (Light Emitting Diode) products, semiconductors, computer chassis, LCD (Liquid Crystal Display) monitors, motherboards, DVD, CD devices, modems, computer power supplies, phone camera modules, keyboards and other electronic components. It is the world’s largest notebook adapter manufacturer with 60% of global market share;37 other components represent large global market shares too. For the most part, Lite-On is an OEM (Original Equipment Manufacturer), which manufactures its products for purchasing companies that retail them under their brand names. Lite-On was founded in 1975 by former Taiwanese employees of Texas Instruments, an American company developing semiconductor and computer technology. Lite-On was also Taiwan’s first manufacturer of LED products. The corporate headquarters is located in the Neihu Science Park in Taipei, Taiwan. Since 1983, Lite-On has been listed on the Taiwan Stock Exchange. About 50% of the company’s shares are now held by foreign investors. In 1989, Lite-On established its first production facility overseas (in Thailand). In 1997, the corporation expanded its manufacturing plants to 38 locations worldwide, including China. Lite-On may be described as a conglomerate of 9 consolidated companies grouped under the parent organization called Lite-On Group. These individual companies are global players and exist as independent divisions (mainly Taiwanese) with their own subsidiaries, manufacturing plants, customer service centers etc. Overall, the group runs 48 factories (mainly in China), 29 branch offices, 4 R&D centers and employs about 40 000 employees.38 In China, Lite-On is among the top 10 Taiwanese companies in terms of facilities, revenues and employees. In. 36. There are different spellings of the company’s name in English (光寶科技 in Chinese). Lite-On. seems to be used most often and is also used in company CSR reports. Thus, the company’s name will be spelled as Lite-On in this thesis. 37 Lite-On website. 38 Ibid.. 32.

(33) 2009, Lite-On established East China Regional Headquarters in Changzhou, Jiangsu province in Mainland China.. 4.2 Lite-On Corporate Social and Environmental Responsibility Before assessing Lite-On’s CSER,39 one has to bear in mind that the company’s CSR is still in its initial phase. Among all the Lite-On subsidiaries, it is currently only LiteOn Technology that has developed a solid CSR strategy. The company’s idea is to first test this pioneer Lite-On Technology CSR program and later implement it in other subsidiaries. Thus, all the information covered in Lite-On CSR reports relates to Lite-On Group’s subsidiary Lite-On Technology. The company’s website describes Lite-On’s CSR in the following way: “Lite-On Technology Corporation is committed to becoming a better global citizen. To achieve this goal, we have implemented a comprehensive Corporate Social and Environmental Responsibility (CSER) program. The program is designed to enhance corporate governance, environmental protection, community programs, and the health and safety of employees. (…) CSER mission is to give back to society what we receive. (…) At Lite-On we have implemented a CSR program with an emphasis on the environment.”40 Lite-On Technology has a total of 18 manufacturing sites, which are mostly located in Mainland China, except for one factory which is located in Thailand. Moreover, the number of manufacturing sites in China is growing, especially in Changzhou, where Lite-On is expanding its operations. The subsidiary’s major operation centers, including sales centers, manufacturing sites, customer service offices and other premises are illustrated in the map below:. 39. Note: Lite-On employs the term Corporate Social and Environmental Responsibility (CSER) to refer to activities usually categorized under the term of Corporate Social Responsibility (CSR). The two terms CSER and CSR will be used interchangeably in this thesis. 40 Ibid.. 33.

(34) Figure 5: Location of Lite-On Technology’s major operations centers. Source: Lite-On CSR report, 2009, p. 17.. Lite-On started publishing Corporate Social Responsibility reports in 2006. The CSR reports for 2008, 2009 and 2010 are available on the company’s website, both in Chinese and English. Comprehensive CSR reports based on the third-generation reporting guidelines of the Global Reporting Initiative (GRI G3) have been published since 2009. The 2009 report was verified by an independent third party, an inspection company SGS Taiwan, and met the highest A+ standards of GRI G3. As for the year of 2010, Lite-On intentionally changed the format of CSR report in order to be more reader-friendly for stakeholders: the report may be downloaded from the website either entirely, or stakeholders may download a specific piece of information they are looking for without the need for downloading the entire report. This new format brings an advantage for the company, because it helps identify stakeholders browsing CSR section on Lite-On’s website: before downloading the information about Lite-On’s CSR, stakeholders are asked to specify their role (investor, customer, academia, labor union, NGO, supplier, media etc.).. 4.2.1 Lite-On Group’s Codes of Conduct Lite-On has established two codes of conduct: the Ethical Code of Conduct for Employees and the Lite-On Group CSER Code of Conduct. The former was developed. 34.

(35) earlier than the latter, but the company decided to keep both of them. The CSER Code of Conduct is based on international certification for social responsibility SA 8000 and EICC (Electronic Industry Citizenship Coalition) Code of Conduct. It covers areas of: •. business ethics (e.g. compliance with national and international laws, fair competition, safety of Lite-On products, respect of local traditions and values in the countries in which Lite-On operates, disclosure of information etc.);. •. labor (e.g. working hours, wages and benefits, human treatment, nondiscrimination, freedom of association etc.);. •. health and safety (e.g. occupational safety, incident and illness, industrial hygiene, emergency preparedness etc.);. •. environment (e.g. establishment of environmental management system, reduction of environmental impact in the supply chain, application of the design-for-the-environment principles etc.);. •. management system (e.g. management accountability, risk assessment and management, training, audits, etc.);. •. corporate governance (e.g. financial transparency, public reporting, inviting independent directors to the audit committee etc.);. •. community involvement (e.g. contribution to social and economic development in the communities, encouraging people to participate in community and civic affairs).41. The Lite-On Group CSER Code of Conduct is supposed to cover all Lite-On Group subsidiaries and refers to company’s employees at all levels. In case of violation of the code of conduct, the company claims to conduct an investigation by the management and the legal department.. 4.2.2 Managing CSR in Lite-On Technology In 2008, Lite-On Technology established the CSER Committee to manage its CSR program. CSER Committee is a virtual organization that consists of board members, top managers and the Cultural Foundation. Lite-On Technology corporation employs three full-time employees to deal with CSR matters. Furthermore, company’s CSER 41. Lite-On Group CSER Code of Conduct.. 35.

(36) is handled by five working groups: people & community, green design, environmental & supplier CSER compliance, public relations, green operation. About 20 major coordinators are estimated to be responsible for CSER goals and overall about 200 employees are engaged in the CSR activities.42 The organizational structure of the CSER Committee is demonstrated in the scheme below:. Figure 6: Lite-On Technology’s CSER Committee and its responsibilities. Source: Lite-On website.. The CSER in Lite-On Technology is put into practice via top-down approach: the top management sets annual competitive goals that are assessed in quarterly meetings. Lite-On has set a total of 14 KPIs, which are linked to particular on-site managers and thus fall under their individual responsibilities. The KPIs include both the environmental (e.g. greenhouse gas emissions, electricity consumption) and social indicators (compliance with the Electronics Industry Code of Conduct, overtime work, community involvement). The implementation may be shown on the example of Greenhouse Gas emission KPI: “CSER Committee is to take the accountability for climate change in our Liteon Group. At least, quarterly review meeting will be taking place there. It will. 42. Personal interview.. 36.

(37) review/approve the proposal GHG reduction plan and watch out the execution status on a regular basis.”43 Lite-On uses the London Benchmarking Group (LBG) model to assess costs and benefits of CSR: each KPI has its ROI (return on investment), which is assessed yearly. The total CSR costs over a three-year period (between 2009-2012) in Lite-On Technology exceeded NTD 50 million.44. 4.2.3 Lite-On’s Key Stakeholders The first chapter introduced the stakeholder theory and emphasized the companies’ necessity to care about various stakeholders. Lite-On CSER Committee collects, ranks, weighs and analyzes the most relevant issues regarding each group of stakeholders. In its CSER approach, Lite-On Technology has identified seven major stakeholders: •. Employees. •. Customers. •. Community. •. Investors (shareholders). •. Suppliers. •. Non-profit organizations. •. Media.. Although not identified among Lite-On Technology’s key stakeholders, its competitors have a tremendous impact on the company’s CSER as it will be explained later.. 43. Carbon Disclosure Project, 2009. Personal interview. Lite-On Technology achieved a consolidated revenue of NTD 97.23 billion in 2009. 44. 37.

(38) Employees and Lite-On Technology’s CSER Lite-On claims to uphold all labor laws and regulations and to comply with the Electronic Industry Code of Conduct designed by the EICC.45 Auditors from SGS (an inspection and certification company, which also verified Lite-On CSR report for 2009) conducted EICC training classes in Lite-On factories in Dongguan, China in 2009. 46 Besides SGS, Lite-On invites experts from academia (e.g. South China Normal University in Guangzhou) and NGOs to give trainings. Lite-On has also developed training programs for operational and management levels on its manufacturing sites and a green supply chain training program for its suppliers. The trainings include various topics, from technology, engineering, to CSR. Due to the absence of computer access in the factories, operational workers are trained in educational classes. For managers, the training takes form of either a class or elearning, which has been put into practice since 2007. Employee benefits are meant to be the same for Taiwan and China. However, sometimes it is not easy to achieve same results on both sides of the Taiwan strait: e.g. in 2010, Lite-On launched a paid volunteer system in order to increase loyalty among employees. Lite-On’s staff is encouraged to take part in volunteering activities and paid financial bonuses if they do so. But due to frequent overtime shifts, employees in China prefer relaxing to volunteering. Customers and Lite-On Technology’s CSER Lite-On’s customers are multinational corporations and leading brands in communication, computer and consumer electronics industries, such as Apple, HP, Dell, Acer, Toshiba, Foxconn, Gateway, Hitachi, IBM, Lenovo, LG, Logitech, Microsoft, Motorola, NEC, Nokia, Samsung, Siemens and Sony. 47 Regarding its relationship with customers and CSER, Lite-On states on its website that “Lite-On’s customers are increasingly requiring strong global citizenship of their suppliers. Customer satisfaction is one of Lite-On’s core values.”48. 45. EICC’s Code of Conduct usually serves as a model code of conduct in the IT industry. EICC will be introduced thouroughly in the chapter 5. 46 SGS in China, 2009. 47 SACOM & Pain pour le Prochain, 2008, p. 10. 48 Lite-On website.. 38.

(39) To a great extent, it is Lite-On Technology’s global customers who shape its CSER policy by demanding a solid and reliable data set about Lite-On’s environmental, social and financial performance. In 2011, Lite-On put great efforts into the development of framework for CSER data collection. In 2012, the company finally launched a virtual system of environmental accounting with 87 items. The company began to understand that the collection of raw data on its sites is very important and may eventually bring costs savings. Lite-On Technology has the ambition to further improve the CSER system by converting the raw data into 300 performance indexes. At the moment (June 2012), about one third of this system is already built.49 Community and Lite-On Technology’s CSER Lite-On’s community engagement is primarily demonstrated by activities of its Cultural Foundation. The activities are extensively covered in Lite-On’s CSR reports. For example, the foundation supports underprivileged children, sponsors cultural and art events, holds industrial design competitions, tree planting and organizes education camps for Taiwan’s indigenous youths. In 2000, the Cultural Foundation established Xinyi Community College. The company also awards young Chinese designers in the yearly Lite-On Awards and thus encourages applicants to submit green industrial design innovations. Investors and Lite-On Technology’s CSER Lite-On Technology’s corporate governance framework is composed of shareholders’ meeting, board of directors, audit committee, compensation committee, internal audit and business teams. The board of directors consists of seven directors representing four institutional investors (Lite-on Capital Inc., Dorcas Investment Co., Da-Song Investment Co., Yuan Pao Investment Co.) and three independent directors. Lite-On Technology emphasizes being the only company in Taiwan to possess the compensation committee and having a highly authorized compensation system, in which only the three independent directors possess the right of resolution for the top management compensations. According to the company, investors provide a valuable feedback to the company’s CSER via various communication channels.. 49. Personal interview.. 39.

(40) Suppliers and Lite-On Technology’s CSER Lite-On main production facilities are located in Mainland China, as well as majority of the company’s suppliers of components. Some of the Lite-On’s suppliers in China, for example 3CEMS in Dongguan (which contributes up to 80% of revenues from Lite-On WLAN products),50 have been working with Lite-On for several years, thus indicating a stable relationship in the company’s supply chain. In its supply chain, Lite-On focuses primarily on improving environmental, health and safety aspects of its business operations. The corporation has developed a basic guideline based on the EICC Code of Conduct and asks suppliers’ management to sign the documents and incorporate their own pledges guaranteeing the social responsibilities. The emphasis is put on green supply chain and green procurement. The criteria for selecting subcontractors and suppliers follow principles of environmental management: •. Whether the supplier has an environmental management system;. •. Whether environmental management requirements have been provided to material suppliers;. •. Whether suppliers can meet Lite-On’s concentration limits hazardous substances in materials.51. In relation to its CSER down the supply chain, Lite-On has developed a supply quality management program. Under this program, Lite-On identifies its critical suppliers as those with an approximate 30% share of revenues. These critical suppliers are targeted for audits by Lite-On and trainings about CSER. In 2011, Lite-On Technology carried out a total of 86 audits on its suppliers’ facilities in China and organized 6 educational courses for them.52 Non-profit organizations and Lite-On Technology’s CSER Lite-On Technology partners with associations mainly related to the industry in which the company operates (Taiwan Corporate Sustainability Forum, Taiwan Electrical and. 50. 3CEMS website. Lite-On CSR Report, 2010. Note: Due to the new format of Lite-On 2010 CSR Report, it is not possible to indicate page numbers. 52 Personal interview. 51. 40.

(41) Electronic Manufacturer’s Association, Taiwan Optoelectronic Semiconductor Industry Association, Taiwan Thermal Management Association, The International Commission on Illumination, Climate Savers Computer Initiative, Digital Living Network Alliance, EICC, UPnP Forum, Wi-Fi Alliance, Photonics Industry and Technology Development Association, Renssealer Polytechnic Institute, Sinocon Industrial Standards Foundation, Taipei Computer Association and Taipei Neihu Technology Park Development Association).53 Competitors and Lite-On Technology’s CSER54 Competitors play an important role in shaping Lite-On Technology’s CSER. First, Lite-On Technology watches and benchmarks its competitors’ goals. For example, for the reduction of electricity consumption, Lite-On Technology competitors’ goal is a reduction of 1-2% over the period of three years (2011-2014). Lite-On Technology thus set the company’s goal to reduce the consumption by 6% by 2014, taking the year 2011 as a basis. Second, the company also receives a valuable feedback on its CSR from its competitors.. 4.2.4 Lite-On Technology’s Certifications and Awards All Lite-On Technology manufacturing sites are certified with environmental management mechanism ISO 14001 and the greenhouse gas inventory norm ISO 14064. The company pays attention to green product design, energy saving and green logistics, but due to high costs of the certifications and expanding number of plants, the company’s plan is to acquire only those ISO certificates that are necessary. All business units are certified with quality management standard ISO 9001. Lite-On Technology plans to certify all its facilities by AA 1000 stakeholder engagement standard in 2012.55 Lite-On Technology joined the EICC in 2008 and is one of the founding members of Taiwan Corporate Sustainability Forum. The company has also received numerous awards for its CSR efforts, for example awards by the Global Views Magazine consecutively from 2005 to 2012 and by the CommonWealth Magazine from 2007 to. 53. Lite-On CSR Report, 2009, p. 19. Personal interview. 55 Personal interview. 54. 41.

(42) 2011, National Civic Service Award in 2009 and it became member of Dow Jones Sustainability Index in 2011/2012.56. 4.3 Labor Force in Lite-On57 In 2010, Lite-On Group had a total of 42 468 employees: 40 674 working in China and overseas (mainly in Asia) and 1 794 working in Taiwan. Employee ratio accounts for 90.5% of employees working in China, 4.9% in Thailand, 4.2% in Taiwan and 0.4% in other places. Lite-On primarily employs local labor force in its overseas plants: in Thailand, 100% of employees are Thai; in China, 93% of employees are Chinese and in Taiwan, 99% of employees are Taiwanese.58 In summary, most LiteOn employees are young Chinese workers aged less than 30 (86% in China) with a secondary or primary education (95.6% in China). Male workers represent 52% and female workers 48% in China.. 4.4 Labor Issues in Lite-On Factories in Mainland China In the period between 2006 and 2008, non-governmental organizations started researching about labor conditions in the city of Dongguan, Guangdong province in Mainland China, where Lite-On factories are located. Namely, the NGO interviewed workers in three Lite-On factories: Lite-On Electronics, Lite-On Computer Technology and Lite-On Xuji Electronics. The researchers have found several violations of China’s labor law and Lite-On’s CSR commitments in the three factories.59 Besides Lite-On facilities, the NGO researched in four facilities, which belonged to other, mostly Taiwanese corporations: Yonghong Electronics, Primax Manufacturing, Tyco Electronics and Volex Cable Assembly.60 Similar violations were detected in these facilities. First, workers in Lite-On factories were forced to overtime work of up to 100-120 hours every month, while Chinese labor law (Article 41) sets maximum of 36 hours of. 56. Lite-On website. Based on Lite-On CSR Report, 2010. 58 Note: figures are available for assistant manager level and above only. 59 SACOM & Pain pour le Prochain, 2008. 60 SACOM & Pain pour le Prochain, 2008. 57. 42.

(43) overtime work per month.61 Workers were not given one day of rest per week and completed shifts of 10 hours and longer. Furthermore, there were frequent unpaid waiting times because of the shortage of raw materials causing suspensions in the operation of production lines. Another violation of Chinese labor law (Article 44) occurred in week-end overtime wage payments, when workers were paid the same overtime pay as on week-days instead of the double of regular wage as stipulated by the law. Second, several occupational health issues were discovered, such as inadequate ventilation, non-provision of masks when working with dangerous fumes and chemicals, absence of health and safety trainings for staff and programs that would evaluate and control hazards of physically demanding work. The toilet breaks were restricted to 5 minutes. Third, workers were not aware of existence of trade union committee, Lite-On’s Code of Conduct, EICC Code of Conduct or corporate codes of the Lite-On’s customers, such as Acer, Dell, Toshiba, HP, IBM etc. Workers for factories in China were also recruited preferably according to their sight condition, which contradicts company’s statements about non-discrimination and fair practices. In the past, Lite-On used to be able to choose from an abundant pool of (often migrant) labor force willing to work in harsh conditions. But since 2009, LiteOn has started to suffer from significant labor shortages in its factories (accumulated employee turnover of 135.9% in 2009)62 as China began its shift from low-cost factories, especially in the industrial zone of Dongguan, where Lite-On factories are located. Many migrant workers were not willing to leave their homes for the coastal provinces anymore, because they were now able to find similar job opportunities in their hometowns. One of the Lite-On’s factory managers commented on the situation: “We used to prefer women because they are easier to manage. (…) Before, we wanted three females for every male. But because of the labor shortage, it’s hard to get that ratio now.”63. 61. Ministry of Commerce of the People’s Republic of China, 2007. Lite-On CSR Report, 2009, p. 65. 63 NDTV, September 16, 2010. 62. 43.

(44) In fact, his words reflect a common management style in factories owned by Taiwanese investors, stressing manageability of workers and their obedience to supervisors at the first place. Similarly to the above statement, other researchers who carried out fieldwork in Taiwanese-owned corporations abroad came to conclusion that the most demonstrable evidence about labor abuses actually comes from Taiwanese management style: “The evidence comes most directly from Taiwanese managers’ own descriptions of their management practices (…).”64. 4.5 Lite-On’s Response to Labor Issues The labor issues in Lite-On factories in Mainland China were reported after repeated fieldwork by non-governmental organizations in 2006, 2007 and 2008. During the NGO’s last research, not only the unpaid overtime work was detected repeatedly, but it was discovered that workers were not allowed to resign during peak production time, even though they would have done so by proper legal means.65 The research findings were then sent to Lite-On and its buyers, including Dell, HP, Apple, Fujitsu Siemens and Acer with demand for their response and implementation of corrective measures. In 2008 and 2009, the NGO and media intensified their pressure on Dell, Lite-On’s key buyer. Thus, Dell was forced to take action regarding its long-term partner and supplier. Generally, global corporations seldom withdraw from the contracts with their suppliers for CSR reasons. Instead, they try to find solution to the problem via cooperation: Dell asked Lite-On to submit detailed data about environmental and social performance (including overtime shifts) on a monthly basis. Yet, this was a problem for the company at the time, since no system that would collect such data existed. Developing and putting such system into practice was the biggest challenge for Lite-On Technology until 2011. The overtime work is now one of the KPIs and local facility managers are responsible for its evaluation. Ironically, Lite-On has been regularly and consecutively receiving awards for its CSR practices in Taiwan since 2005, despite the violations of labor law that were detected 64 65. Wang, 2005, p. 45. SACOM & Pain pour le Prochain, 2008.. 44.

(45) in corporation’s factories in China. Yet, Lite-On was the only Taiwanese corporation among the researched factories that developed a comprehensive CSR program addressing the detected problems.. 45.