Labor Pains

This story appears in the May 2007 issue of Entrepreneur. Subscribe »

Rod Trujillo has visited thousands of Chinese factories and has seen a wide range of working conditions. "I'm not opposed to hopping on a plane to make sure there are no labor abuses at our factory," says Trujillo, 38, founder of International Rubber Products, an $11 million Rancho Dominguez, California, maker of molded rubber products.

As more companies turn China's low labor costs into their competitive advantage, many have found that they need to take extra pains to make sure the people making their products are treated well.

"Over 80 percent of factories there engage in labor abuse--either overtime abuse or wage-rate abuse," says Usha Haley, professor of international business and director of the Global Business Center at the University of New Haven in Connecticut as well as co-author of The Chinese Tao of Business: The Logic of Successful Business Strategy. Some U.S. companies hire auditing firms to monitor the treatment of workers, but an entire industry has formed to help factory managers fool auditors. It's better to make site visits or hire a consultant who knows the business terrain and speaks the language. Zotes, a Salt Lake City maker of sunflower seed snacks with $2 million in sales projected for 2007, did just that. "Our consultant can really flush out the bad facilities," says Zotes founder Jason Fry, 34.

Haley and Trujillo say the best way to avoid labor abuse is to ease the price pressure on Chinese sources. "Don't go for the lowest price," Trujillo advises. "Your employees will be treated like crap and your product quality will be uneven."