In our earlier blogs on choosing and selecting a production partner, I discussed how Fairphone wants to take a different approach in our relationships with production partners. Fairphone feels strongly that the relationship we build with our suppliers will be the foundation on which we make interventions. Thanks to our first backers, the Fairphone buyers, we have been able to do an initial assessment of the working conditions at Changhong, a necessary building block in our relationship to assess and work on improvements and more disruptive interventions going forward. Their purchase is already making changes at they factory, which I’ll detail in this blog post.

Over the years, audits have unfortunately turned into checking boxes on a checklist, which does not necessarily mean certain practices are implemented. The policing model has actually made many suppliers less transparent, even to the point of hiding information, presenting false records, coaching workers in advance to say the right things, and restricting access – or worse, unauthorized outsourcing of production. We want to take a different approach to assessments. By creating a long-term relationship in which we grow business together and create value based on mutual gain, our social enterprise wants positive social impact to go hand-in-hand with profit margins.

Training a new production line on Fairphone assembly key points.To achieve better results, we can’t allow the need for speed and flexibility to be shifted to our production partner with corresponding costs. Putting transparency and values-based business practices first, makes it possible for us to expect more from them and they can expect more from us in return.

So, what are the conditions for the workers at the assembly lines where the Fairphone will be produced and will they need to improve?

In order to get a baseline understanding of the conditions at Changhong, we worked with TAOS. As you can read in their guest blog, TAOS is a local Chinese organization and will partner with us for the duration of this journey. To determine the conditions at the factory and allow for improvements to take place before Fairphone production started, TAOS carried out a social assessment in August 2013 – a first for the factory in Chongqing. This was based on the Ethical Trading Initiative’s (ETI) Code of Conduct.

During their two-day visit with 3 assessors, TAOS interviewed management as well as production workers. They did a factory walk-through, a document review, including company policies and payrolls, and interviewed workers. 
These findings have been documented in the TAOS Assessment report. Download the TAOS assessment report here.(.pdf) Following from these results, a set of improvements began to develop including (management) training and an assessment of production processes. These findings are our starting point for collaboration on improvement of conditions.

TAOS Social Assessment: Findings and Follow up

Not surprisingly there are issues to address. We are very much aware that there is no such thing as a „fair factory.“ So, you may be asking – why choose to work in China, anyway? While we’ve addressed it before in this blog post, I’ll discuss it briefly here, too.

Fairphone deliberately chose to work in China, knowing it would not be easy, because we are aiming to improve working conditions in a country and in a business environment that present several challenges. At the time, our criteria for selection was based on companies sharing our values-based business practices and their willingness to offer transparency in the manufacturing supply chain. Being able to offer a quality smartphone was crucial, as well as their agreement to work with our suppliers and change their normal processes to use conflict-free tin and tantalum.

Ethical Trading Initiative (ETI) code of conduct posted on the factory wall.That said, many of the challenges we face in improving the business practices along the assembly lines are of fundamental and systemic nature, most notably workers‘ representation, the right to freely associate, collectively bargain, and issues of wages and overtime. So of course there are issues at the factory.

The findings fall into two broad categories: 1) short-term compliance, and 2) structural implementation. There are certain legal requirements to which the factory should comply according to Chinese law, but we want to achieve structural and sustained implementation for some of these long-term systemic problems. This will take time, training, and hard work from all parties involved.

Short-Term Compliance

Given the limited space on our blog, we’re not going to elaborate on every improvement made in the first category. A short summary is below, but if you want a complete overview, we’ve got a little something for you – the TAOS social assessment report, and a list of social compliance issues and the resulting action plan. Take a look here (pdf).

There is one incident that we want to address specifically. When the assessors reviewed workers‘ files prior to any production taking place at Changhong, they found one worker whose hiring date was 42 days away from the legal working age of 16. Thus revealing that a protocol was not thoroughly in place to provide proper verification files for each worker.

The worker had already submitted her resignation (with required 30 days) prior to TAOS discovering the issue. Upon recommendation of the assessor, however, the factory terminated the working relationship immediately and provided compensation per law (including transport to the worker’s guardians). The factory has addressed and improved their existing age-verification protocols, and understands it was a serious violation and dealt with the matter quickly and responsibly.

Short-Term Compliance Follow-Up

Based in Chongqing, our Fairphone project manager Mulan, has been able to assist and monitor the follow-up in the factory.
The factory now has:

• Better fire safety measures;
• Written policies on child labor and juvenile protection;
• Copies of local labor law have been placed in areas where workers can read and easily access them;
• Chemicals have proper and adequate labelling;
• Lighting in the production rooms has been improved;
• Changhong is now providing lunch for free in the cafeteria.

Mulan and Stella, our Changhong Project Manager, enjoying Chongqing spicy lunch.In the meantime, in collaboration with TAOS, we will continue following-up on improving the issues at the factory, like the reduction of overtime (more on that in the next sections).

Structural Improvements – Worker Welfare Fund

A crucial part of our efforts is to empower workers with collective bargaining skills and improve worker representation channels, thereby providing a platform for behavioral change in the factory. To do this, we are working on forming a Worker Welfare Fund, a fund that will be governed by factory worker representatives in dialogue with factory management, and Fairphone. Remember the premium of $2.50 for each phone sold? If not, just take another look at our cost breakdown.

Well, this money will be matched by Changhong so, doing the math, that puts us at $5 per sold phone that will be given to the fund. How this money is spent will be decided upon in consultation with the above-mentioned representatives. You can think of certain items like bonus pay-outs and leisure activities to skill training, personal development and team building. For your understanding, this does not include any items that are part of the factory’s responsibility under legal compliance. In effect, by establishing this fund, workers will get a channel to fairly select representatives on the fund and co-decide on what happens with the investment you made. The timeframe for this is between now and Summer 2014.

The formation and functioning of the governance structure of the fund are the fundamentals on which other interventions can be built.

We are working with an external working group of several experienced and passionate people and organizations to set up and facilitate fair elections for workers to choose their representatives. This also involves how to decide how to spend the Fairphone premiums so that they can effectively participate in decision-making and collective bargaining. This „Made with Care“ working group consists of several labor experts in the fields of academia and civil society (like NGOs).

Overtime

Overtime is often caused by ineffective processes and, in particular, unexpected issues in the production planning including delays in components and other materials. Often, the most convenient way to still ensure that delivery dates are met is to get workers to work overtime.

Mulan with some members of the Changhong quality control team.If certain processes would be better monitored and managed, working hours could be better controlled. By digging deeper and understanding production procedures and processes in detail, we can address the necessary changes to reduce overtime. TAOS has already started this work thanks to you and will continue to visit the factory in the coming few months to train and advise Changhong on these and the other remaining issues with the support of our Fairphone project manager, Mulan.

Fairphone Production

You may be wondering what the current basic conditions are concerning wages and working hours during the four-week period of Mass Production of the Fairphone.
To put it clearly, during our production run:

• Workers have at least one day off in seven;
• Workers receive minimum wage (RMB 1050 or USD 169 per month) and are properly paid for overtime, already a factory-wide practice;
• Working hours will not exceed 60 hours a week – above the legal amount (49/week), but lower than industry standards and within the margin of the ETI base Code

At this point, we realize these minimum standards are not sufficient for our long-term goals. Our ambition going forward is that better business practices will become commonplace across the factory and not only on the Fairphone production lines where the above requirements will be implemented. The programs we are launching will address that. But, it will take time and commitment.

Small Batches, Real Impact.

A production run of 25,000 phones by industry standards is quite small, but we believe that it is a good starting point to change systems. Systemic change will take time and long-term engagement. Therefore, our step-by-step model is designed to create continuous engagement with the partners we work with. We will be producing relatively small batches of phones within a relatively short production cycle (many small production batches as opposed to few bigger production batches), which will ensure continuous engagement with the factory and make it possible to continue our phased approach for long-term improvements.

This way, the sales and the production of the Fairphone should facilitate a continuous flow of improvements and change. Only this way can we learn, iterate and gradually implement system improvement. This is why we are making a phone. Thanks to the commitment of our Fairphone community, we can use the production of this phone to become a vehicle for change, a platform for discussion and an investment for long-term social impact.

Additional Section on Wages & Worker Welfare Fund

We know we’ve already thrown a lot of information at you – but just for clarity’s sake, we’ve added one more section to elaborate on a few details (and numbers). This section added on 11 December 2013.

Since it’s obvious that the working conditions at present do not reflect our ambitions going forward, we would like to explain here why these numbers are the way they are and hopefully address to what Fairphone buyers are contributing with their purchase.

Wages

It’s a given that minimum wage differs per region as living standards (or price for a „bread basket“) differ depending on where you live. This is the case in most countries, and for an overview of minimum wages in China, please see this source. Changhong’s factory is based in Chongqing and most workers are from Chongqing and the neighboring provinces. The factory pays wages according to law and pays (weekday/weekend/holiday) overtime according to law. Moreover, the paycheck of a worker at the factory can include other bonuses like perfect attendance pay and good performance bonuses. In total the paycheck during the month of our production would amount to somewhere between 1800 and 2500 RMB/month, including overtime pay.

What do people making the Fairphone earn and what are we doing to increase this?

Fairphone aims to tackle problems at the root. We felt strongly that if wages were to go up, they should include wages of the entire factory workforce, not just the people on our line. Why? If we only paid people on our line, chances are that the unbalance would create envy or discomfort among staff, which is not a desirable situation.

Instead, Fairphone chose to put the extra $2.50 – that our buyers contributed with a Fairphone purchase – for the direct benefit of the worker’s welfare into a Fund. The factory agreed to match this $2.50, amounting to a total of $125,000 for this first production.

We could have paid this to the workers on the Fairphone line, but that would mean that only a relatively small group of workers at the factory would receive the equivalent of 7 times their basic monthly salary! Therefore, Fairphone decided to dedicate the money to benefit the entire factory’s workforce.

Moreover, by setting up a structure in which workers get control over how to spend this money fairly, we are taking the first steps to fair elections and worker representation.

So, in short, the Worker Welfare Fund is dedicated to all workers. The workforce at Changhong consists of around 1,000 people, of which around 100 will be working on the Fairphone over the next month. If we calculate what this means per worker, depending on what the workers decide to do with the funds, all 1,000 people could receive the equivalent of one-month’s basic salary when the Fund is disbursed. This means that Fairphone buyers are in effect making it possible for workers to launch an initiative for worker elections, after which they can take part in discussions and control what happens with these funds. It remains up to them whether they spend these on bonus pay-outs or on leisure activities, skill training, personal development and team building.