Core methodology

In order to answer the research questions, a mix of qualitative and quantitative methodological techniques can be used to combine both exploratory and explanatory research (Yin, 1989). Several methods may be used for authors and researchers who work in organisations and some argue that one should attempt to mix methods to some extent, because it provides more perspective on the phenomena being studied (Easterby-Smith, 1991) and the same position is recommended for PhD research by Gable (1994). A mix of exploratory and explanatory qualitative research methods is suited to serve this research purpose, as the subject under study does not have a well-developed set of theories regarding the level of knowledge and status of implementation. As such the content itself involves a complex system of company and supplier interdependency. Therefore this thesis is highly practical and the theoretical components will be taken into account to a much smaller extent. The research explicitly explores genuinely open questions and new phenomena, rather than testing theoretically derived ones, since the topic under study is dynamic by nature. The method is best suited for focusing on real-world situations such as both factory operations and labour working conditions. Previous researchers such as Kolk and Tulder (2002) have also used exploratory methods to investigate supply chain management. The cyclical methodology and action research model is the most suitable since the research problem is highly practical in nature, focus on change, have a problem-solving emphasis and are concerned with participation (Denscombe, 1998). “Action research is a process of systematic reflection, enquiry and action carried out by individuals about their own

professional practice” (Frost, 2002:25). It allows “action and critical reflection taking place in turn. The reflection is used to review the previous action and plan the next one” (Dick, 1997:1) and “combines a substantive act with a research procedure, it is action disciplined by enquiry, a personal attempt at understanding while engaged in a process of improvement and reform” (Hopkins, 2002:42).

Most scholars characterise the action research model by dividing it into four processes: plan, act, observe and reflect (Bassey, 1998; Cryer, 2000; Dirk, 2002;

Robson, 2002). This involves defining the enquiry for research, planning and executing the activity, observing the outcome, reflecting on what has happened and deciding on the next activity.

The four-tier research methodology is fitted into the action research model. It is illustrated in fig 3.1.

Fig 3.1 The diagrammatic representation of the action research model

The action research model illustrates that the research process involves multiple cycles of planning, acting, analysing and reflecting. Such reflections lead to the

Act 1

Analyse 1

Study 1 Postal survey

Act 3 Act 2 Reflect 1

Analyse 3 Analyse 2

Study 2 Detailed interview

Study 3 Multiple Case

study

Reflect 2 Reflect 3

Study 4 Detailed interview with

expert

Implications and outcome

identification of a particular problem or issues that are missing in the literature and require further research. By completing each cycle, findings from the research become the starting point for developing an action plan. The cycle begins again from planning to reflection. This method can lead to substantial studies within the supply chain setting in this region. The nature and objectives of the four action plans is discussed below.

Study 1: Postal survey

The first plan of this research investigates manufacturers’ knowledge and practice of supply chain management for sustainable development through a direct postal survey, since there is no literature in this region. This method is often used in a broad sense in social sciences (Babbie, 1979; Last, 1983). Due to the lack of literature describing the current status of supply chain management, the first part of the research is explanatory by nature. It is aimed at exploring whether manufacturing companies are knowledgeable, have engaged or are willing to engage with any SCM activities. A detailed questionnaire was drafted and administered to a selection of manufacturing companies in Hong Kong. The questionnaire also sought to understand if the macro drivers, such as the WTO, would lead to changes in their current practices in the near future. The data was verified quantitatively, as this could help to clarify the research results in the later stages of the study.

Study 2: Detailed phone interviews

The second plan was aimed at finding out the existence and knowledge of CoC in regulating suppliers’ behaviour locally (see Appendix B). Qualitative telephone interviews primarily investigated the perception of retailers. In-depth interviews with best practice retailers further elaborate on the drivers and reasons behind implementing CoC.

Study 3: Multiple case studies

Corporate CoC are often drafted in western countries and are often aimed at improving working conditions in developing countries. The aim of the case studies is to measure the effectiveness of CoC through monitoring. The need for CoC monitoring is largely due to pressure from customer companies and the sweatshop campaigns mostly initiated in the US. To evaluate the effectiveness of CoC, there is a need to find out how the code is communicated, if the business entity’s employees and management follow the code, how compliance with the code is monitored and if compliance with the code improves the effectiveness of other control policies and procedures. Both qualitative and quantitative analysis were applied to find the emerging trends. The analysis identifies the implications of suppliers and the interrelationship amongst suppliers and multinational companies. A case study methodology was chosen as the main approach to tackle the key research problem as this forms an empirical inquiry to assess the real-life context. In carrying out the case studies, multiple forms of qualitative techniques such as in-depth interviews (McCracken, 1988) were used, which produce data directly and relate to the interactions and interconnections between action and

consequence. Some of these components were selected in answering the research problem.

The design of the research within each case study has its own distinct characteristics. Each case study represents a particular multinational company with its contracted supplier. Information tends to be interpretative and in-depth.

Several explicit and independent case studies provide a broad description of the observations, and in-depth interviews were carried out on a random sample of workers. This provides a rich and detailed discussion of a small set of examples that can then form a valuable contribution to the understanding of the complexities of the supply chain and the complex decision-making that lies behind multinational companies and their suppliers. Yin (1994) describes collective case studies as analytical generalisations and explanation building as opposed to statistical generalisation.

Case studies were selected to focus on a single industry. A single industry was used to control the differences in processes and materials that might be common for multiple case studies’ comparison. The literature review in Chapter 2 reveals that the garment industry is of cross-industry significance. This industry appears under the greatest pressure from consumers and the media in terms of implementing CoC compared to other parts of the supply chain. In addition, the export-oriented garment industry was selected for the case studies for the following reasons: economic, geographical, historical and media significance.

(1) Economic significance of the garment industry in the greater PRD

Economic performance forms part of the sustainable development paradigm. The PRD is an economic region on the southern coast of China. Its GDP is between US$250 to 300 billion (Enright and Scott, 2004). It is outperformed by the Yangtze River Delta Economic Zone and Bohai in the northern part of China. In addition, the PRD’s gross domestic product (GDP) combines with Hong Kong and Macau Special Administrative Regions to be US$275.8 billion (HKSAR government, 2004 and China Statistics Press, 2002), which makes it the fastest growing export-oriented manufacturing area in the region. According to the World Trade Organisation’s figures in 2003, the value of Chinese exports reached US$ 325.6 billion in value. Detailed economic indicators in the greater PRD are shown in table 3.1. If the economy continues to grow at the same rate as in the past, the combined GDP will be close to US$500 billion in 10 years' time (Hong Kong Coalition of Service Industry, 2004).

HKSAR Macau PRD

% of secondary industry (%

of GDP)

12.4 12.5 50.0

% of tertiary industry(% of GDP)

87.4 87.5 44.0

Total export trade (US$ billion)

200.1 2.58 112.61

(Source: HKSAR Government, 2004, Hong Kong Trade Development Council, 2004a, Macau SAR government, 2003 and China Statistics Press, 2003)

Table 3.1 Summary table of the HKSAR, Macau and PRD general and economic indicators

Further comparisons of economic indicators, GDP and the value of total export trade between Hong Kong and the greater PRD show the significance of Hong Kong within the region (see table 3.2). In the first 10 months of 2003, Hong Kong's exports of clothing to the US, EU and Japan rose year-on-year by 4%, 12% and 3% respectively (HKTDC, 2003).

PRD HKSAR Macau Greater

Total export trade (US$ billion) (2004)

182.43 258.86 2.81 444.1 64.9

(Source: HKSAR Government, 2004 and China Statistics Press, 2004) Table 3.2 Comparative table of the greater PRD and Hong Kong economic indicators

Among many industries, the garment industry is regarded as a traditional light manufacturing goods sector dominated by SMEs due to rapid economic development. Among the top ten industries in the PRD economic zone, the gross industrial output (GIO) for the PRD in terms of garments is RMB 47.42 billion.

This industry accounts for 26.17% of the value-added percentage of gross domestic output (Guangdong EPB, 2002). Garment production in the PRD continues to rely heavily on export growth. The PRD itself accounts for 34% of the country’s total exports, where a large part of these industrial and commercial activities in the region are the business investments of Hong Kong citizens.

Taking Guangdong province as an example, 93% of Hong Kong manufacturers have production facilities in Guangdong and 60,000 factories in Guangdong are

invested in or produce for Hong Kong companies (HKTDC, 2003). Almost 70%

of residents in the PRD believe that the relocation of Hong Kong industries across the border has added to the mainland’s pollution problems (Civil Exchange and China Development Institute, 2003). Therefore, Hong Kong investors should share the responsibility for solving part of the problem. 70% of PRD goods are freighted through Hong Kong and re-exported to other parts of the world, which makes Hong Kong an important element in many supply chain links.

The United Nations Conference on Trade and Development (UNCTAD) reported that the garment sector remains an important part of world trade and that world imports have increased from 2.4 to 3.1% (value from US$41 to US$174 billion) in the period of 1985 to 2000. In 2000, this single sector also accounted for 20%

of low technology non-resource-based manufacturing. Local NGO Oxfam International also ranks “the textile and garment sector as the single largest source of manufactured export from developing countries by value” (Oxfam Hong Kong, 2004), see table 3.3 for further details.

Country Export value in 2002 (HK$ million)

Table 3.3: Export clothing value and % of national merchandise export in 1995

The combined value of Chinese, Hong Kong and Macau exports is HK$ 399,797 million compared to the total export value of the remaining 14 developing countries, which is valued at HK$ 327,952 million. This shows the dominance of the greater PRD market worldwide (see table 3.3 and 3.4). The importance of these three regions has been fully discussed in the previous chapter (FHKI, 2003).

Country Export value in 2002

Bangladesh 32,222 52.7 67.8 Cambodia 8,775 0 81.7

Philippines 20,336 13.8 7.2

Romania 25,358 17.2 23.4

Table 3.3: Export clothing value and % of national merchandise export in 1995 and 2002 for the above countries

The worldwide significance of this sector is also shown by its customer base.

This sector also has worldwide consumers who spent approximately HK$8

trillion buying clothes in one year, with sales of one-third from Western Europe, one-third from North America and one-quarter from Asia (Gibbon, 2003).

The most significant impact of the garment industry is from the upper end of the product development process that consists of wet processes from production of fibres, washing, bleaching and dyeing of textiles, which is outside the scope of this thesis. The scope of this thesis is confined to focusing on the lower end of garment product development where the common dry processes of fabrics are carried out, including cutting, sewing, washing, ironing and packing products to be delivered to retailers. Labour and human rights issues are at the forefront of this product-finishing end.

(2) Geographical significance

The original definition of the PRD region was first introduced in 1985, which only included 16 municipal cities excluding Guangzhou, Zhuhai and Shenzhen.

Two years later, a broader definition of the greater PRD was adopted to include Guangzhou, Zhuhai and Shenzhen. Since there are various definitions that arose in different years, a proper definition of the PRD is necessary to state the geographical boundary of this research. The official definition of the ‘Greater Pearl River Delta’ (greater PRD) that includes the Hong Kong Special Administrative Region (HKSAR), the Macau Special Administrative Region, and the Pearl River Delta Economic Zone (PRD economic zone) of Guangdong Province is applied in this thesis and as shown in fig 3.2. The PRD economic zone comprises of Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Dongguan, Zhongshan, parts of Huizhou (the urban district of Huizhou, Huiyang County,

Huidong County, and Boluo County), and parts of Zhoaqing (the urban district of Zhaoqing, Gaoyao, and Sihui) (Guangdong EPB, 2002).

Source: InvestHK, 2005

Fig 3.2 The geographical map of the greater PRD

The greater PRD consists of a population of 30.88 million people living on a land area of 41,294 km² and forms a major part of the world’s manufacturing and distribution base. Since 1985, China has adopted its open-door policy where its economic growth is largely through export-oriented manufacturing industries.

Since then, many Hong Kong manufacturers relocated their production facilities to southern China and retain their sales and support services in Hong Kong (Yam

and Tang, 1996). In Guangdong, 60,000 factories are invested in by, or produce for, Hong Kong companies. Hong Kong accounts for over 70% of Guangdong’s total foreign investment. 93% of Hong Kong manufacturers have production facilities in Guangdong and 83% of Hong Kong traders source products from Guangdong. Some of them have other offshore production facilities in other developing countries such as Bangladesh, Cambodia, Indonesia, Madagascar, Mauritius, Mexico, South Africa, South Korea, Sri Lanka, Thailand and Vietnam in order to lower the production costs. The relocation of production facilities to southern parts of China has resulted in a steady decline in the number of garment manufacturers in Hong Kong, and at the same time re-exports of garments from Hong Kong to other countries has increased. The Trade Development Council shows that Hong Kong exports to Europe and the US has increased by 12% and 4% respectively each year (HKTDC, 2003). Hong Kong benefits from the cross-border sourcing relationship as mainland China is in a rapidly developing stage of economic development.

In Hong Kong alone, the garment industry accounts for 1,805 companies and the gross output was HK$41.1 million in 2001 (HKTDC, 2003). The gross output is one of the highest amongst all manufacturing sectors, which account for 52.5%

of total domestic exports in the first ten months of 2003 (HKTDC, 2003). It is the largest manufacturing employer hiring 32,987 workers, according to the Hong Kong Trade Development Council (HKTDC). A large number of Hong Kong companies (16,403 according to figures from December 2002, TDC) are now garment traders or vendors for multinationals that only deal with import-export.

A lot of these Hong Kong branches are SMEs that have less than 50 employees

control, logistical arrangements, sales and marketing and other trade supporting services. In addition, Hong Kong’s free port status, the existence of good local institutional structures such as legal, financial and banking systems, good communications infrastructure, quality of life for executives, supporting and supply industries, government economic policy and political cleanliness, also attracts foreign buyers such as multinationals to set up local sourcing offices and source products from China through Hong Kong. These high profile companies are under much greater pressure from a comparatively larger range of stakeholders to improve social as well as environmental performance. In contrast, small supplier firms are under lesser pressure, but are highly influenced by their customer’s demands. As a result, high profile companies are under higher potential environmental and social risks compared to smaller firms. The next chapter will further elaborate on the reasons why multinationals and their suppliers are favoured for a case study methodology.

In terms of the manufacturing industry which forms part of the global supply chain, SMEs are defined as manufacturing enterprises with fewer than 100 employees and they remain very important in Hong Kong since they account for a large percentage of the total number of manufacturing establishments. One-third of them are import-export oriented employing 397,686 workers. The total number of employees in this sector outnumbers wholesalers, retail trades, restaurants and hotels (SME information centre, 2004), as can be seen in table 3.4. In the first month of 2003, domestic exports fell by 3% while Hong Kong's re-export of clothing increased by 7%. This is the result of the third stage of the liberalisation process on textiles and clothing quotas under the WTO Agreement

on Textiles and Clothing in 2002, which suggests that the trend of relocation of factories to the mainland is continuing. Macau also faces a similar situation of a decline in their manufacturing industries.

Manufacturing 16,356 5.7 107,379 8.1

Mining and

Source: (SME Information Centre, 2004)

Table 3.4 SMEs distribution among Hong Kong industrial sectors

Due to the relocation of factories, as previously mentioned, Hong Kong no longer plays a major role in manufacturing, but has instead become an important export trading and sourcing economy. According to figures published by the Hong Kong Trade Development Council in 2002, 83% of Hong Kong traders source from Guangdong (HKTDC, 2002). Taking into account the period of 1979 to 2001, the cumulative foreign direct investment (FDI) from Hong Kong alone in Guangdong amounted to US$ 79 billion, accounting for 71% of the total cumulative FDI inflow to Guangdong (Federation of Hong Kong Industries, 2003). This growth trend continued until the year of the Asian financial crisis in 1997. The statistics indicate that most of the economic development and industrialisation has been driven by Hong Kong. Shanghai comes in second place in terms of cumulative FDI inflows for the same period as mentioned above, with only US$ 16.1 billion, accounting for 40% of total cumulative FDI. One of the major obstacles of the above mentioned FDI figures is that they do not take into account the FDI inflow into export-processing activities which add up to a larger figure: “Guangdong is the only Chinese province that is a significant recipient of foreign investments in export-processing activities” (Federation of Hong Kong Industries, 2003). Referring to FDI in relation to export-processing investments for Hong Kong only, 55% of total Guangdong FDI and 26% of total Shanghai FDI comes from Hong Kong. Other minor FDI investments in Guangdong and Shanghai are from Japan, Taiwan and South Korea. As indicated above, the importance of the PRD is much more significant than the Yangtze River Delta (YRD) which will be the main focus of the case studies in Chapter 6.

Increasingly, civil society expects businesses to be accountable for the impacts resulting from their business decisions on outsourcing aspects of the supply

chain. In the US, statistics show that six out of ten Americans are concerned about sweatshop conditions within the US and a further nine out of ten are concerned about goods made in Asia or Latin America (Vietnam Labor Watch, 2002).

Although the garment supply chain is one of the longest, most complicated and

Although the garment supply chain is one of the longest, most complicated and