Consumer power over supply chains

Consumer power over supply chains

‘Creating a shared future in a fractured world’ was the sobering theme of the World Economic Forum in Davos last week — one that I believe was bang on target.
The IMF has just raised global economic growth projections to nearly 4 percent for this year and next. But the last twelve months have shown how sharp the perception of inequality is, between regions and between different strata of society within regions. After all, Donald Trump’s criticism of the US political elite struck a chord that catapulted him straight into the White House. 
Globalization is under fire in some parts of the developed world. This is a worry for us since we are a diversified natural resources business operating in 14 countries across four continents. Thankfully the rhetoric about the retreat of globalization isn’t matched by reality. Global economic markets are still drawing closer. And long may this continue. In the 35 years from 1980 to 2015 the number of people living in extreme poverty fell four times faster than it had in the previous 150 years. While elements of the developed world question globalization, the developing world does what it can to embrace the trend, knowing it is the surest route out of poverty.
Global trade has done wonders for consumer purchasing power. By opening up labor markets thousands of miles from the buyer, prices have fallen and jobs have been created in poorer nations where employment costs are lower. Richer nations no longer hog the production chain. 
There is another side to this coin. The power of major global corporations is starting to cause unease among governments. Consumers are increasingly aware of how companies are behaving and are prepared to vote with their wallets when standards – of sourcing, production or governance — fall below expectations.

Creating a shared future in a fractured world” was the sobering theme of the World Economic Forum in Davos last week — one that I believe was bang on target.

Alexander Machkevitch

In the headlong pursuit of lower costs some things cannot be overlooked and child labor is one.  There is no excuse to turn a blind eye to child labor in the pursuit of lower costs. There will always be differences in employment costs around the world.  But it is indefensible for businesses and consumers to allow children to lose their childhood and miss the chance of an education.  
The problem exists in Congo, which is home to 60 percent of the world’s cobalt reserves. Cobalt is a key component of lithium-ion batteries. A 12-fold increase in battery capacity is needed to meet consumer demands and the promise of a low-carbon economy. The market is likely to reach $100 billion by 2025. Such powerful long term demand for resources should benefit Congo’s 78 million people. 
But artisanal and small scale producers mine cobalt in Congo without the safeguards which the mainstream mining groups adhere to.  Children as young as 4 years old work in hazardous conditions.  Because this output finds its way into the supply chain, consumers must face the fact that our smartphones, electric cars and other devices may be tainted with materials produced by child labor. 
The same pressures that have brought us globalization can help bear down on the use of child labor – the internationalization of media, and consumer power.  As big-brand apparel producers have discovered, once consumers realize how their pound, dollar or euro is being used they vote with their wallets.  
This is where responsible business and good business meld.  Those of us at the sharp end, operating mines in some of the toughest regions of the world can work together and agree how to operate a responsible value chain. In recent months established mining groups, UNICEF and others set up the Global Battery Alliance , a World Economic Forum initiative, to ban child labor, safeguard workers, promote re-use and recycling and unlock innovation for green energy storage. 
Operating in this way costs more in the short term but it gives our customers reassurance about the provenance of our products.  Those who sign up for these international initiatives won’t be driving the last penny out of costs, but we will be doing global business sustainably and consumer choice should ensure we remain competitive.
  • Alexander Machkevitch, is chairman of the Eurasian Resources Group
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